Hyatt Hotels Corp (H) 2019 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Third Quarter 2019 Hyatt Hotels Corporation Earnings Call.

(Operator Instructions) As a reminder, this call is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Brad O'Bryan, Treasurer and Senior Vice President, Investor Relations and Corporate Finance.

Please, proceed.

Thank you, Chris.

Good morning, everyone, and thank you for joining us for Hyatt's Third Quarter 2019 Earnings Conference Call.

I'm here in Chicago with Mark Hoplamazian, Hyatt's President and Chief Executive Officer; and Joan Bottarini, Hyatt's Chief Financial Officer.

Mark will begin our call today by sharing some insight on our third quarter performance and the execution of our strategy.

After covering a few additional topics, Mark will then turn the call over to Joan, who will provide more detail on our financial results for the quarter as well as an update on our full year outlook for 2019 and some preliminary guidance on 2020.

We will then take your questions.

Before we get started, I would like to remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements.

These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K and other SEC filings, which could cause our actually results to differ materially from those expressed in or implied by our comments.

Forward-looking statements in the earnings release that we issued late yesterday, along with the comments on this call, are made only as of today, October 31, 2019, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold.

You can find a reconciliation of non-GAAP financial measures referred to in our remarks on our website at hyatt.com under the Financial Reporting section of our Investor Relations link and in last night's earnings release.

An archive of this call will be available on our website for 90 days for the information included in last night's release.

With that, I'll turn the call over to Mark.

Thank you, Brad.

Good morning, everyone, and welcome to our third quarter 2019 earnings call.

I'd like to begin my comments by saying that we're pleased to see the execution of our strategy continue to drive results and demonstrate the strength of our business model today and into the future.

Our focus on integrating value-creating strategy with disciplined and consistent execution has yielded strong results for us over time and through periods of volatility.

The strength of our brands and our focus on operating excellence and efficiency have been foundational to those capabilities and have fueled our ability to drive high levels of both net rooms growth and fee growth.

We continue to do this as we execute on our capital strategy and increase the percentage of our fee-based earnings.

Joan will provide details of our Q3 results and an update on our full year guidance.

But first, I'd like to spend a little time covering a couple of areas in our business for the quarter.

Flat year-over-year RevPAR results we reported for the quarter and the reduction in our RevPAR guidance for the full year are primarily driven by 2 factors: performance of our select service hotels in the U.S., primarily our Hyatt Place properties; and the disruptions we've experienced in Hong Kong.

RevPAR has contracted for our select-service hotels in the U.S. over the course of this year, as we shift distribution channel mix towards a higher proportion through our internal channels.

While our fees are driven substantially from full-service hotels, our select-service RevPAR performance has had a meaningfully negative impact on our reported system-wide RevPAR results.

Although the recovery is taking longer than anticipated, looking ahead, we do expect improvement in results after we lap the programming changes we made in our Hyatt Place hotels during the fourth quarter of last year.

As a reminder, the programming changes in Hyatt Place hotels were designed to benefit a role of Hyatt members and our hotel owners over the long term.

And to that end, we're seeing results by way of higher direct channel mix, increased World of Hyatt penetration and decreased distribution costs.

We remain focused on maximizing this area of our core business, and we continue to see exceptional growth in these brands globally and expect over 10% growth in the number of Hyatt Place hotels in 2019 alone to approximately 370 hotels.

There remains significant potential to further expand the Hyatt Place footprint globally, where the brand is underrepresented or not yet represented.

The second major contributor to the downward pressure we reported on our RevPAR results is the ongoing disruption in Hong Kong.

This month, we are celebrating the 50th anniversary of our presence in Hong Kong.

Over the past 50 years, we've established a very strong brand reputation, especially in the food -- in our food and beverage operations.

And we've operated through many different types of challenges over time, strengthening our relative position there throughout our operating history.

Our RevPAR results in Hong Kong in the third quarter were down about 36%, and conditions have worsened in October, with RevPAR down over 50% for the month.

If you look at results for our Greater China full-service hotels without Hong Kong, Macau or Taiwan, RevPAR was up in the quarter, approximately 0.5 point, with occupancy up about 200 basis points.

The key focus for us during times of disruption is how we manage through it and how to take advantage of every opportunity we have to strengthen our position.

We see resilient demand for our brands in the face of the recent challenges, and our full-service hotel market share in Greater China was up approximately 110 basis points in the quarter.

While there is uncertainty as to when the disruption in Hong Kong may end or when the trade concerns will dissipate.

We continue to have great confidence in the long-term prospects in Greater China, and we are excited about our growth plans there.

We've seen no pullback in interest from developers and our pipeline, and pace of new signings in Greater China remains strong.

In fact, our year-to-date signings are already in excess of full year 2018 signings, and we will open a record number of hotels this year.

Now I'd like to comment on market share and the group and transient picture.

In the third quarter, we are operating at or above all-time high occupancies in most markets.

Once again, we drove system-wide market share increases for the quarter, up approximately 100 basis points across the globe.

Our global full-service market share increased approximately 140 basis points, while select service share was down a similar amount.

Our full-service hotels drive over 3/4 of our total fees, and they continue to perform well versus the competition.

As to group and transient performance in the U.S. Our group rooms revenue was roughly flat in the U.S. and transient rooms revenue was up approximately 1%.

Corporate group room revenue continued to hold up well with an 8% increase over 2018 levels, and cancellations have remained at modest levels for our corporate group business.

Total group production was a bit soft in the quarter with near-term bookings down more significantly, the same dynamic we've seen throughout the year.

Group pace for 2020 is up over 3%, and we have secured more than 70% of the business on the books.

As we've mentioned before, the fundamentals of the economy in the U.S., in particular, have remained stable.

Increases in transient room nights have more than offset declines we have seen from association and Leisure group business.

U.S. full-service transient room revenue is up about 1% for the quarter.

On a year-to-date basis, it's up about 2%, with room nights driving essentially all of the increase as rates have been relatively flat to last year.

As always, our visibility to transient demand for future periods is limited.

I also want to briefly comment on SG&A.

Our commitment to maximizing our core business in a lower-growth environment includes a disciplined approach to managing our SG&A costs, while still allocating resources to support our growth strategy.

We are growing our global presence with industry-leading net rooms growth, and we are making some investments to grow our brands and support the launch of new brands in key markets around the world.

In freeing up capacity to fund these investments, we've also reduced spending elsewhere and have managed to keep total costs essentially flat and drive leverage in our earnings.

Before turning things over to Joan, I'd like to update you on a few additional items.

I'll start with asset sales under our incremental $1.5 billion sell-down commitment.

As we disclosed in a Form 8-K filed on September 16, we completed the sale of Hyatt Regency Atlanta for $355 million.

The hotel has delivered very strong performance this year and benefited from the Super Bowl during the first quarter.

Pricing for this asset was strong with the normalized multiple of approximately 12x, and the buyer is committed to investing significant capital in the hotel as part of the sale.

With this asset sale, follows the sale of a San Francisco property for $120 million, as discussed during our second quarter call, and brings our total asset sales under our $1.5 billion sell-down commitment to approximately $475 million at a blended multiple of approximately 13x adjusted EBITDA.

As to the other hotel that has been on the market, we have advanced the sale process and have signed a purchase contract, subject to closing conditions.

We expect to close this sale in the fourth quarter of this year.

Each quarter this year, I've provided an update on the growth and strength of the World of Hyatt program, as it's a key part of our strategy to personalize the guest experience.

Year-to-date, World of Hyatt enrollments were up 37% and continue to be driven by on-property enrollments and also digital sign-ups.

Global room night penetration is up 430 basis points over the last year to a level slightly above 41% of total room nights, representing an all-time high for program contributions.

Our strategic alliances are adding to the value of membership and are increasing momentum in the program.

We now have over 250 small luxury hotels participating properties as part of our alliance with SLH, and we continue to add additional hotels significantly expanding our offerings for leisure travelers.

Our alliance with American Airlines has exceeded expectations since it was launched during the second quarter, with significant numbers of members linking their accounts and new members coming in from the Advantage program, driving additional hotel revenue through World of Hyatt bookings.

We continue to believe that strong engagement of World of Hyatt members contributes to our market share performance over time.

Finally, I'd like to briefly discuss Caption by Hyatt, the new brand we recently introduced at the Lodging Conference in September.

Caption by Hyatt is a new lifestyle select service brand that we designed to create a social, localized environment that fosters authentic connections.

The brand will facilitate connections for both guests and local patrons as a destination with self-activated design and an appealing food and beverage offering that combines café, market and bar concepts.

The food and beverage concept for the brand is being designed by Danny Meyer's Union Square Hospitality Group, with the goal of establishing it as a point of attraction for those working and living in proximity to the hotels.

Captioned by Hyatt Hotels will be targeted in high foot traffic urban centers, and we see global demand for this type of experience and products.

We believe this brand fills in a gap, not only for us, but across the competitive landscape with the ability to cater to different stay occasions in our current offerings, while also driving enhanced non-guest revenue through the public social space, anchored by a unique food and beverage concept.

The development cost for Caption by Hyatt hotels will be competitive with other lifestyle select service hotels and the operating model will drive strong and competitive operating margins.

Our Owners Advisory Council has been actively involved in the journey to develop this exciting new brand, and we've received extremely positive feedback and significant interest since officially announcing the brand just last month.

In summary, I'm happy with our ability to advance Hyatt during an uncertain time, and I'm proud of the performance we've achieved so far this year.

Specifically, first, as to growth, we expect a record year of hotel property and rooms openings this year while growing our pipeline, which is currently up 26% from a year ago.

We have been integrating Two Roads Hospitality properties over the course of this year, and we are now set up for enhanced growth in the future as a result.

Second, as to operating performance, we continue to grow market share across the globe.

We've maintained hotel operating margins in a challenging environment, and we've maintained rigorous discipline in managing SG&A.

We will also have completed substantially all integration efforts for Two Road by the end of this year at costs consistent with our expectations, and we will benefit from a $25 million reduction in SG&A next year related to the onetime integration costs incurred in 2019.

Finally, as to capital strategy, we've executed well to date and expect to close at least 1 more transaction this year, all at valuation levels that will position us very well to fulfill all of our commitments under our disposition initiative.

This will allow us to return at least $500 million to shareholders this year.

In short, in all areas of our strategy, we are doing exactly what we said we would do, executing on our strategy to support long-term growth and value creation for the company and our shareholders.

With that, I'll now turn the call over to Joan.

Thank you, Mark, and good morning, everyone.

Late yesterday, we reported third quarter net income attributable to Hyatt of $296 million and earnings per share of $2.80 on a diluted basis.

Included in net income for the quarter are pretax gains on sales of real estate amounting to $373 million.

Adjusted EBITDA for the quarter was $163 million, while system-wide RevPAR was flat.

The shift in the timing of Jewish holidays had a positive impact of approximately 50 basis points on our system-wide RevPAR growth for the quarter, whereas Hong Kong offset that benefit with 50 basis points of negative impact.

Excluding Two Roads and the net impact of real estate transactions, our adjusted EBITDA grew 1.3% on a constant currency basis.

Adjusted EBITDA growth was driven by solid management and franchise fee growth, fueled by net room growth of approximately 8%, excluding Two Roads, partially offset by some pressure coming from our owned and leased hotels.

I'll now highlight our segment results, starting with our managed and franchised business, where we delivered growth in base, incentive and franchise fees of approximately 12% on a constant currency basis compared to the third quarter of 2018.

Incentive fees were down slightly compared to last year with strength in many markets being more than offset by approximately 50% declines in incentive fees from hotels affected by the lapping of the FIFA World Cup from last year and from our Hong Kong hotels.

Base management fees and franchise fees were both up significantly, driven by strong net rooms growth, which continues to drive fee growth well in excess of RevPAR growth.

In fact, both fees and adjusted EBITDA for our managed and franchised business are up double digits in the quarter.

Our mix of earnings from our managed and franchise business is at 62% of adjusted EBITDA before Corporate and other, up from 56% in the third quarter of 2018.

I'll now shift to results from our 3 lodging segments.

Starting with Americas, which accounted for approximately 74% of our management and franchising adjusted EBITDA in the third quarter.

The Americas segment delivered full-service RevPAR growth of 1.5%, while select-service RevPAR declined 2.4% for the quarter, as we continue to see some pressure from U.S. supply growth in the upscale category and managed through the impact of our results from brand-specific strategies we implemented at the end of 2018.

Total U.S. RevPAR was down 0.6% for the quarter.

Net rooms growth for the segment was close to 12%, including the Two Roads hotels or approximately 5%, excluding Two Roads.

Base, incentive and franchise fee growth of approximately 12% drove adjusted EBITDA growth of about 11% for the quarter, both on a constant currency basis.

Full-service group rooms revenue in the U.S. was approximately flat versus last year with a decrease in group room nights, offset by rate increases of slightly more than 2%.

Consistent with the dynamic we saw during the first half of the year, corporate group business was an area of strength, up over 8%, offset by lower demand coming from association and Leisure group business.

Our group revenue pace for the full year 2019 is now down approximately 2%.

Total U.S. group production for all years was down approximately 3% in the third quarter.

While in the year, for-the-year bookings were down approximately 9%.

Looking ahead, group's booking pace for all years is up with the exception of 2021, which is down a little over 1%.

U.S. full-service transient business was again up for the quarter, driven entirely by room nights with rate down approximately 1%.

I'll now move to our Asia-Pacific segment, which accounted for about 16% of our management and franchising adjusted EBITDA in the third quarter.

Full-service RevPAR for the segment decreased 2% in the quarter, driven by a combination of decreased occupancy and rate.

Full-service RevPAR in Greater China decreased by 6.5%, driven by the impact of demonstrations in Hong Kong and the impact of the change in the casino room block in Macau.

Net rooms growth for the segment was approximately 18%, or 14% excluding the Two Roads hotels, mostly driven by growth in Greater China.

Strong net rooms growth more than offset the RevPAR decrease resulting in an increase in base, incentive and franchise fees of approximately 5% in constant dollars, inclusive of a 45% decrease in fees from our hotels in Hong Kong.

Adjusted EBITDA grew approximately 2% on a constant currency basis.

Moving on to Europe, Africa, Middle East and Southwest Asia segment.

This segment accounted for approximately 10% of our management and franchising adjusted EBITDA during the third quarter.

Full-service RevPAR increased 1.6% with occupancy increases more than offsetting a decrease in average rate.

Net rooms growth was approximately 16% or 14% excluding Two Roads hotels.

Base, incentive and franchise fee revenue for the quarter increased 2% on a constant currency basis, muted by the FIFA World Cup in Russia during 2018.

Segment-adjusted EBITDA increased approximately 8% on a constant currency basis.

I'll now move on to our owned and leased business, which accounted for approximately 38% of our adjusted EBITDA before Corporate and other in the third quarter.

Comparable owned and leased RevPAR was flat for the quarter.

Owned and leased segment EBITDA decreased approximately 17% in constant currency, driven by asset sales, primarily completed in 2018.

Excluding the net impact of transactions, segment-adjusted EBITDA decreased approximately 4% in constant currency.

Our third quarter consolidated comparable owned and leased margins decreased 20 basis points versus prior year despite gains of almost 1% in the productivity.

Results for the segment were negatively impacted by certain market dynamics as well as construction delays and slower ramp at certain of our joint venture hotels.

I'll now shift gears and provide an update on our outlook for the remainder of 2019 and then provide a few comments on 2020.

Beginning with RevPAR, we are reducing our expected full year 2019 RevPAR growth guidance to approximately 0.5%.

This reduction is primarily driven by continued pressure we are seeing in RevPAR from our select-service hotels in the U.S., combined with the significant negative impact from Hong Kong.

With respect to adjusted EBITDA, we filed a Form 8-K on September 16, indicating a reduction in expected 2019 adjusted EBITDA of approximately $8 million related to the sale of the Hyatt Regency Atlanta, which brought our prior full year adjusted EBITDA guidance down to a range of $747 million to $767 million.

Today, we are adjusting that guidance to a range of $730 million to $745 million, representing a $20 million decrease at the midpoint of the range.

Embedded in our revised adjusted EBITDA guidance is a $10 million reduction in our anticipated adjusted SG&A spend for the year, reflecting disciplined and responsive cost management, as Mark mentioned earlier.

After consideration of the positive impact of expected SG&A savings, the adjusted EBITDA estimate reduction, compared to our previous expectations, is driven by the following 3 items: first, the 1 point drop in our RevPAR guidance would imply about a $15 million decrease in earnings based on our growth model assumption of a 1% to 3% RevPAR growth environment.

This would include the effects of the RevPAR pressure we are seeing in Hong Kong and our select-service business in the U.S. Given our RevPAR growth expectation below 1%, we expect earnings sensitivity to be slightly higher, due primarily to pressure in our owned and leased business.

The second item is the outsized impact we saw in a couple of specific markets, New York and Orlando.

Rate growth and non-room revenues coming in lower than our expectations led to weaker flow-through in those markets.

The third item is related to lower-than-expected earnings contribution from joint venture hotels.

We have been affected by construction delays and weaker-than-expected ramp up in a few of our joint venture hotels.

With respect to net rooms growth, we are confirming our prior guidance range, however, the pickup of rooms in Q4 is at risk of lagging due to potential construction delays, and we are expecting to come in at the low end of this range with a greater pickup in the first quarter of 2020.

Capital expenditures are in line with prior guidance of $375 million.

With respect to shareholder capital returns, we've returned approximately $377 million to shareholders through October 25 inclusive of dividends.

Approximately $351 million remains on our existing share repurchase authorization.

Our full year guidance for shareholder capital returns was increased to approximately $500 million in our Form 8-K filed on September 16 and remains at that level at this time.

For a full update on our 2019 guidance, please refer to our earnings release and supporting schedules.

Turning now to 2020.

I'll provide our thoughts on just a couple of key metrics.

As I mentioned earlier, we anticipate 2019 ending at about 0.5% RevPAR growth.

While it is very early, as we look forward to 2020, we anticipate next year could look somewhat similar to this year from a system-wide RevPAR growth standpoint, recognizing we see some pressure in certain areas and potential upside in others.

If we were to range it at this point, we'd estimate 2020 could fall within a range of plus or minus 100 basis points from our expected 2019 RevPAR growth and will provide a more specific update during our fourth quarter call in February.

Our net rooms growth, we expect to continue to drive high levels of growth, which will drive solid fee growth going forward.

We expect to deliver net rooms growth in 2020 within the 6.5% to 7.5% range of our growth model.

I would comment that while we see great momentum on new deals and the growth of our pipeline, we are seeing construction delays and cost increases that will have an impact on the timing of openings.

But lastly, our current expectation for capital expenditures in 2020 is approximately $275 million.

As we shared at our Investor Day back in March and in subsequent discussions, we expected our capital expenditures to begin to decrease significantly as we sell additional owned assets and reduce our funded hotel development efforts.

This 2020 guidance number amounts to a $100 million decrease from our current 2019 guidance and does not include any assumptions related to further asset sales, which could reduce our CapEx further to a potential range of $200 million to $250 million, consistent with post sell-down estimates we previously provided.

In conclusion, we are encouraged by our third quarter results and continue to effectively execute our strategy, as Mark discussed earlier.

At the same time, we are confident in our ability to be responsive to the evolving operating environment, driving leverage where we can and importantly remaining focused on our long-term growth strategy.

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

(Operator Instructions) Your first question comes from David Katz with Jefferies.

I apologize if I missed the one detail.

But within the management business and the incentive management fees that you break out, have you indicated what percentage of those hotels are earning IMFs today?

Obviously, asking the question in the interest of trying to sensitize that in and out of cycles over time.

Great.

Thank you for that, David.

I think the best way for you to think about the incentive management fee base that we've got is -- if I reflect back on -- just taking 2018 to give -- to provide the context and framing for this, roughly 30% of our total base, incentive and franchise fee base -- fee revenue base, roughly 30% of it is incentive fees.

Of those, about 1/3 of them are from U.S.-based hotels and 2/3 from non-U.

S. hotels.

And in general, the structure of the incentive management fee arrangements in the U.S. involves a profits hurdle above which incentive fees are paid and below which incentive fees are not paid, whereas, most of the deals -- most of the structures outside the U.S. have incentive management fees that are effectively fully variable from $1 of whatever profit measure is driving the incentive fee calculation.

So -- and then if you break down the remainder of the fee base, so 30% is incentive fees, 45% are base management fees and 25% of the total last year were franchise fees.

We break out these data, by the way, every quarter.

But I just wanted to contextualize it for you.

So you could understand how to think about either sensitizing or at least understanding what the movements are now.

With respect to this quarter and this year, actually, over the last 2 quarters, we have faced, what I would describe, as sort of dramatic headwinds with respect to last year because of the FIFA World Cup.

So the hotels in Europe, it's not just Russia, but it is inclusive of material fees that were earned last year, they were down significantly year-over-year because it was such an outsized event from a revenue perspective that it really elevated the incentive fee base in the second and third quarters of 2018.

And then with respect to this year, in addition to that lapping of the strong performance in Europe from FIFA, we also have the Hong Kong effect because our Hong Kong hotels have a significant measure of incentive fees embedded in them, which is why the earnings impact for us, looking out into the remainder of the year, is so significant.

Your next question is from Stephen Grambling with Goldman Sachs.

Based on the recent experience in selling assets, I think you reiterated some of the targets on that permanent asset sell-down that you outlined at the Analyst Day.

But maybe you can talk to how the recent conversations have trended relative to the expectations set there?

Great.

Thanks, Stephen.

First of all, I feel really good about where we stand.

We're already over 30% of the way in terms of our sell-down commitment based on what we've already closed, and we're only 7 months into this now.

So first and foremost, I would say, we're, once again, putting pace on the ball behind our commitment.

Second, as I mentioned, we have a signed contract for a second asset that will be material to the total advancement against the $1.5 billion goal.

I would say pricing to date has been at or above our expectations of what we thought that we would see in realization on disposition.

We're not going to go into details on the asset that is pending sale at this point until we close.

But I would say, overall, we're pleased with what we've seen.

And as I've said in the prepared remarks, we -- it positions us in a way that leaves us extremely confident that we will not only deliver on the gross disposition sale proceeds, but also on the valuation metrics that we provided, which were to -- which was to say that we -- we said that the valuation -- implied valuation for the assets that we would sell would fall within the 13x to 15x range.

And I would just say that we have no concern whatsoever about meeting that goal.

I would say, in addition to the actual asset sales that we've closed so far and the one that's pending now, I would just want to add that we continue to have discussions -- by the way, both on the buy-side and the sell-side, so we are continuing to look at potential acquisitions at this point.

But on the sell-side, we've also been active in looking at other assets.

We did sell a joint venture interest that we had in San Francisco earlier this year.

We just this week closed on the sale of a development asset.

We actually acquired a piece of land in Austin, fully entitled it for development of a 246-room hotel and sold the entirety of the project, all the land plus carry on our investment to a really great partner of ours that we've already done a number of deals with, and they will now proceed to build the hotel.

This is consistent with what we've said at the beginning of the year, where we're looking for opportunities to find partners who can take on the responsibility for the construction of hotels that we see underdevelopment because we're getting out of that business of building hotels.

And we also are in discussions on some other projects where we've got hotels under construction or sites that we've identified where we can actually find development partners who can actually acquire the projects from us.

So it will free up additional capital over time and also alleviate our need to go into the completion of those hotels.

So I feel very good about the level of activity and our ability to, first of all, secure great locations.

It's a phenomenal location in Austin for new Hyatt Centric, but also then find great partners to take over the projects.

That's helpful.

Maybe a quick follow-up on David's first question.

If the environment does remain weak or deteriorates further, at what point do you start saying, we need to batten down the hatches and take more aggressive operational action or even change kind of strategic actions.

I'll start, and I'll turn it over to Joan to provide more color on what we've actually been doing.

But I would say the way I would answer that question is, we don't think about changing our strategy.

What we do think about is tactically pivoting and shifting what we do and what we prioritize in order to be responsive to what we're seeing.

We talk a lot of times in these generalities about how a point in RevPAR is going to affect earnings or affect other aspects of our business.

But the composition of that point where it comes from, in which markets and how we got there, matters a lot.

The other thing I would just point out is that a big, big percentage of our revenue -- total revenue is non-rooms revenue.

So we hyper-focus on RevPAR dynamics, but outside the U.S., nearly 50% of our total hotel revenues are driven by food and beverage and banqueting and events on which we are also earning fees.

So we pay attention to the whole business, but we've taken steps, both at the hotel operating level and at the corporate level.

And I think Joan can provide a little bit more color on that.

Yes.

Thanks, Mark.

Just to expand, Stephen, we have been operating in a low single-digit RevPAR environment through the course of the year and 0% RevPAR growth in the third quarter.

So we have been exercising some of those levers that we have.

At the property level, we've continued to see gains in productivity, relentless focus from our operating teams on how to have the right people in the right place at the right time, and they continue to yield results, which are offsetting, as you know, wage increases throughout the U.S., in particular.

So those levers have been pulled, and our teams have been effective.

They've done a great job doing that and also looking for opportunities as it relates to F&B, because it is such a large proportion of our revenue base, of which -- where we can be more efficient and also have people there in the operating outlets and in banquets when those covers and when that activity base is higher or lower.

So that's what we've been doing at the hotel level.

And then at the corporate level, you've seen us revise our guidance downward.

We've been actively -- been very disciplined about our corporate investments and still staying focused on our growth strategy just reallocating investments to growth strategy to stay focused there and finding opportunities to save costs where we can.

Your next question is from Jared Shojaian with Wolfe Research.

Just going back to the unit growth commentary for 2020.

Does the 6.5% to 7.5% net unit growth guidance, does that assume you come in at the lower end of the guidance in 2019 from, I guess, not getting the pickup that you talked about from some of the construction delays in the fourth quarter?

And would you expect to be I guess at the higher end of the range towards the 7.5% in 2020 if there is some slippage from 2019 into 2020?

Great.

Thanks for the question.

The -- there are a couple of dynamics here.

So first, we -- in general, we have seen and continue to see both construction costs -- evolution of construction costs, all higher, in almost all markets, by the way, and timing delays in completion of construction.

Part of that has to do with resource availability and part of it just has to do with, in some cases, gaining entitlements and approvals and the like.

One of the JVs with which we had an issue and has continued to be an issue is a delayed opening because of some approvals that have taken much, much longer to achieve.

Now that hotel happens to be in California.

And the process to get to closure -- an opening through regulatory front tends to be a little bit more extreme.

But so we've seen it impact openings for sure.

And so we are looking into the fourth quarter and assuming that in some cases we will have some slippage into next year.

To the extent that, that happens, it will bolster the total result for next year, for sure.

And the reason why we're at this point providing a range is because we can't really get more specific until we know how we finish the year and what rolls over.

The second dynamic is that -- what's also true, is that our production in our pipeline signings also tends to be back-weighted.

So it's -- it tends to be much heavier in the fourth quarter.

That's been the case pretty much every year as far back as I can remember and I think is likely going to be the case this year as well.

And embedded in that are some potential conversions that we will need to factor in depending on when they happen to open.

So those are the kinds of things that we will need to assess and put our hands around in order to narrow the range of what we expect to see next year.

Okay.

And then just shifting gears here as we think about some of the non-core growth drivers that you have in 2020 between Two Roads and Miraval, specifically, I think you should get a nice bump from both of those just given 2019 was an unusual year with Miraval renovations, obviously, the one-timers with Two Roads.

So my question is, can you just help us think about the incremental EBITDA contribution of both of those items, Miraval and Two Roads, in 2020 relative to what you got in 2019?

And that's it for me.

Sure, Jared.

I'll expand on what we're thinking now about growth for next year.

Still -- we're still in the middle of our planning process.

But we do expect to deliver -- to continue to deliver core growth in our business, largely fueled by our net rooms growth and another strong year of fee growth.

We do have, as you mentioned, the significant nonrecurring item for the Two Roads integration.

That's $25 million that is onetime in 2019.

And we have some other tailwinds, as it relates to 2020.

You mentioned Miraval.

Miravel will be ramping next year.

The joint ventures that we mentioned in our prepared remarks will also be positive next year.

That's our expectation.

And I would just add, we have easier comparisons as we look at next year into the second half.

And we think there's some other positive events, global events, like the Olympics in Tokyo, where we have some presence, significant presence in Japan.

So there's some tailwinds there.

And having said all that, there's also the uncertainty, so as we're in the middle of the planning process, we've got -- looking closely at the -- considering what the impact will be of the length of the disruption in Hong Kong and resolution to the trade situation in China as well as the U.S. election that is ahead of us next year.

So some of the uncertainties, as you all know, are things that we're keeping in mind as we think about planning for next year over the course of the quarters, the first half, second half of next year.

And we'll provide an update on our fourth quarter earnings call where we think things will -- where our expectations will be.

Your next question is from Michael Bellisario with Baird.

Can you maybe quantify -- can you quantify how much of value you guys have tied up in land and these other development projects that you mentioned that could be monetized in the coming quarters?

I can't do that off the top of my head.

What I can tell you is that we've got -- apart from the partial land that I just mentioned and also to just give you some context for that, I don't remember the exact number, but it was in the range of $15 million to $20 million.

So just to give you a sense for size of asset base there that was involved in that sale.

So apart from that, we've got a development project underway that we are actually operating in Philadelphia.

And that's an example of a project, in which we are in discussions with some potential partners to joint venture that.

So that will release some capital and shift responsibility for completion.

But that's really the final on-balance sheet development that we have.

All the other investments that we've got at this point, which number probably somewhere between 10 and 12 other projects, are in the form of either structured investments like preferred equity or subordinated debt or, in a few cases, common equity JV interests in projects that are under development right now.

A lot of them happen to be Hyatt Centric hotels under development in a number of markets around the country.

But I wouldn't be able to give you a handle on what the total amount is.

It's all embedded in our balance sheet, of course, but specifically with respect to those projects, the vast majority of those projects are going to open over the next 18 months.

And our expectation is that sometime between opening and stabilization, which could take a couple of years.

We will probably seek liquidity in those areas.

The final thing I would say is, just to reiterate what I said before, that we've made a firm and clear decision to not take on new -- any new development projects.

We still see the opportunity to accelerate and secure unique opportunities by deploying capital, but it's going to be typically in a structured investment where we've got clear liquidity provisions to monetize those investments.

And in all cases, any new commitments we make will be -- the projects will be someone else's responsibility to actually complete.

Got it.

That's helpful.

And then just one follow-up.

You mentioned acquisitions.

Should we be thinking about hotel properties or brands like Two Roads as the reinvestment opportunity for you guys?

We look at both.

And I would say that our #1 goal with respect to redeployment of capital would be to find additional Two Roads like opportunities.

So asset-light platforms that allow us to have future growth.

And so we do continue to look at and -- for and at those kinds of opportunities.

When I mentioned earlier that we were actively engaged in the market and looking at some asset acquisitions, I meant that literally.

So we are also taking a look at, in limited cases, fee acquisition of hotels.

They're unique opportunities.

But our intention in every one of those cases would be to identify assets and a structure that would allow us to effectively recycle that capital promptly.

Let me just be super-clear, though, I want to reiterate that the commitment that we made is $1.5 billion of net proceeds -- net gross proceeds of sales minus any investments that we make in acquisitions.

So it does not compromise or otherwise amend the commitment that we've got to have a net amount of $1.5 billion of gross proceeds over a 3-year period.

So even if we were to pull the trigger and acquire something, it doesn't have any impact on that commitment.

Your next question comes from Smedes Rose with Citi.

I was just wondering if you, I guess, sort of pro forma for the asset sale you completed and the one that you expect to complete, if you could maybe quantify what 1 point of change in RevPAR would do for your remaining owned portfolio in terms of the flow-through to EBITDA at this point?

I think what we'll do is take the opportunity to provide an update on this in our next call.

First, we will need to provide and plan to provide an estimate with respect to run rate earnings that we expect to see -- the variance in earnings that we expect to see based on whatever we end up closing heading into the year, this coming year.

So we will provide that update once we close this additional transaction.

And we also do plan to talk to the sensitivity analysis in our earnings growth model when we announce fourth quarter earnings.

Okay.

I just wanted to ask to -- you talked a little bit about the RevPAR declines of the select-service hotels, and you noted that some of that was moving to internal channels.

I'm just wondering -- so the profitability for the owners despite the revenue going down, it sounds like maybe profitability is up?

Or can you speak to maybe what they're seeing?

Sure.

So World of Hyatt penetration in our select-service properties is up about 850 basis points year-over-year, which is roughly twice what the system-wide rooms penetration is up.

And so you can see that there's an outsized movement in our, especially Hyatt Place hotels, that's really the driver here because the operating model wasn't really shifted in the Hyatt House model.

So that's really the shift that we intended to make.

And the rough comparison, it's going to depend a lot on what market you're in and what aspect of third-party channels you take advantage of.

So this is not a hard and fast rule.

But I think a reasonable estimate for the difference between the cost of the internal channel through World of Hyatt bookings and external channels broadly defined includes OTA, wholesale and others, would be roughly in the range of 900 to 1,000 basis points of cost base.

So we're up 850 basis points in terms of mix shift towards internal channels, the World of Hyatt bookings, and the cost differential there is in the range that I just mentioned.

So it's not immaterial.

And as you probably know, the P&L scrutiny for select-service and below hotels are -- is high.

So these changes in distribution costs are meaningful.

Yes.

And that's helpful.

And then you just mentioned in your revised guidance, we obviously saw the declines in Orlando RevPAR, but I was just wondering if you could provide a little more detail on what you, sort of, actually have seen or are hearing?

I mean on other calls, people are talking about the new Disney attractions, maybe not being as popular.

Any sort of detail of what's taking place for your property there?

Yes.

I'll start and I think Joan can also weigh in here.

The one thing that we haven't talked about in more detail yet is what the profile of transient demand over the course of the quarter was.

And the one thing that I would say, specifically in relation to Florida and the Carolinas, for example, is that we did see pretty significant impacts in September that is negative variances in leisure transient business, which we really attribute primarily to the Dorian aftermath that is concerned about bookings and things like that.

Some of the hotels were down 30% and 40% in their transient leisure business for the month.

Now, the quarter was really all over the map because July and August were actually really strong leisure months.

And Hawaii, and ironically, the Bahamas, our hotel in the Bahamas was -- a very large Grand Hyatt Baha Mar, was not actually very significantly impacted by Dorian.

So either -- luckily, they were not affected physically because the storm hit a couple of hundred miles north of them.

But also, we were concerned that people would just associate Bahamas with Baha Mar and just not go.

But they actually held up their business very well.

So we saw a tremendous leisure demand in Hawaii and in the Bahamas.

That was -- those were really 2 big drivers.

I'd say, overall, Leisure and business transient were about equal in -- over the course of the quarter, different dynamics in July and August versus September.

But -- so that's really the kind of the dynamic that we saw on the transient side.

But some of the impact that we saw in the O&L side, in Orlando, in particular, related to some F&B negative variances that we experienced.

So I don't know, Joan, if you want to provide some comment on that.

That's right.

And that's why I called it out in my prepared remarks that Orlando outside of our RevPAR sensitivity had -- relative to expectations again, they had produced actually better non-room revenue results and transient demand in the -- over the first half of the year.

And so in the third quarter, they saw that those amounts being less than they had originally anticipated.

Some of this is just lower participation or a random cancellation, nothing that we're seeing that is persistent, but definitely had an impact in non-room revenue.

And it's a big hotel in Orlando, our Hyatt Regency Orlando is a big hotel.

Chris, we'll take our last question now.

Our last question is from Vince Ciepiel with Cleveland Research Company.

A question on -- looking into 2020 in the owned EBITDA line, I know that you probably had a headwind from dispositions, maybe a little bit of carryover from the lease sale and a more meaningful from the Atlanta sale.

As you look at it today, what type of EBITDA headwind are you expecting to 2020, owned from dispositioned.

So as it relates to the dispositions that we've announced through today's call, it's about a $30 million transaction impact going into 2020.

And we'll update you on our fourth quarter earnings call as well as to any changes to that expectation.

Great.

And then maybe separately, just curious, in your conversations with developers, lenders, your unit growth still sounds quite strong with the expectation for stability, generally into next year.

The pipeline was stable over quarter-to-quarter.

I'm just curious if the lower RevPAR environment has translated into a little bit more uncertainty with developers or lenders?

Or is there appetite still quite strong going into next year?

I think conceptually, one would imagine that there's got to be some impact.

But honestly, we have not seen it.

We just continue to see really strong deal activity.

We had a record year of signings last year and a record year of openings.

We will exceed the openings this year, and we're having another really strong year of signings.

So I -- we are, of course, paying a lot of attention to the fact -- and we know this intimately, because as I mentioned earlier, we are still actively engaged in building at least 1 hotel, but we'll be out of that business entirely soon.

So we see what the cost escalation issues are and how that can have an impact.

And we have seen the impact really being mostly in the timing of openings and so forth.

But we have not seen that impact or diminished demand.

I think part of it also is that we have got brands that continue to perform well.

And on a look-through basis, you have to look through the disruption we've experienced in Hyatt Place this year given the shift -- the model shift that we've really effectuated, but our brands are still very under-penetrated.

So I think one of the reasons why we feel confident that we're going to be able to continue to find great development opportunities is because we're not running to ourselves.

We have lots and lots of open space for development for a really strong brand portfolio.

So that's partly why I feel confident that we're going to be able to continue to maintain our signings momentum.

Ladies and gentlemen, this does conclude the Q&A period.

I'll now turn it back to Brad O'Bryan for any closing remarks.

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

Ladies and gentlemen, this does conclude today's conference call.

Thank you for your participation, and you may now disconnect.