Hyatt Hotels Corp (H) 2019 Q4 法說會逐字稿

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

My name is Kenzie, and I will be your conference operator today.

(Operator Instructions) As a reminder, this conference 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, Kenzie.

Good morning, everyone, and thank you for joining us for Hyatt's Fourth 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.

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 on our website for 90 days.

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

Thank you, Brad.

Good morning, and welcome to Hyatt's Fourth Quarter 2019 Earnings Call.

I'll begin this morning by recognizing the colleagues and our teams in our Asia Pacific region, who are living through extraordinary circumstances and demonstrating a profound commitment to care for their families, for our guests and our customers, for our hotel owners and for the communities in which our hotels operate that have been hard hit by the reduction in travel associated with COVID-19.

Hyatt's purpose as a company is to care for people so they can be their best.

It is especially in these types of circumstances when many of our colleagues are restricted in their movements.

And in many cases, unable to go to work at our hotels that our purpose matters the most.

Our teams in Hong Kong and Shanghai have worked tirelessly over the past 4 weeks, to support and care for our colleagues whose travel plans were significantly impacted by COVID-19, while also caring for our colleagues to ensure that they can be their best for their families.

In the meantime, our teams have undertaken a wide variety of actions to reduce the run rate expenses at very low occupancy hotels.

Our World of Hyatt team demonstrated agility in quickly assessing the needs of our members in Asia Pacific, and announced yesterday a series of status and tier extensions for those members.

Very proud of what the Hyatt family is doing to fulfill our purpose and to ensure that we are aggressive in limiting the financial strain that our hotel owners are experiencing in greater China and in other markets in Asia Pacific, where travel patterns have been disrupted.

Now I'd like to provide some highlights of our fourth quarter, which was a very active one, especially on the growth and capital strategy fronts.

We finished the year strong, delivering RevPAR growth in line with our expectations and earnings ahead of our expectations.

On the growth front, we opened a record number of hotels and signed a record number of new management and franchise agreements that resulted in pipeline growth of approximately 13% on a year-over-year basis.

We completed the sale of Grand Hyatt Seoul for $481 million while ensuring our long-term brand presence with a 75-year management agreement.

We continue to drive industry-leading net rooms growth, while at the same time, executing our capital strategy and demonstrating the value of our hotel real estate.

I'd like to provide an update on our Two Roads acquisition completed in the fourth quarter of 2018.

We are pleased with our first year of operations under our acquired brands, Alila, Thompson, Joie de Vivre and Destination Hotels.

Our integration efforts were well-executed and in line with budget and expected timing.

Over the past year, we integrated hotels by brand into our systems and processes, and we're seeing exploration of the brands by our World of Hyatt members with the room night penetration rate for these brands, running in the mid-20s, about 4 months following inclusion in the program on average.

We also see strong interest from developers around the world with meaningful additions to our lifestyle and resort pipeline.

Moving to our focus on growing our presence around the world, I'm excited about the progress we've made over the past several years.

We continue to drive industry-leading growth levels with the addition of 90 hotels and over 19,000 rooms on a gross basis during 2019.

Most importantly, we continue to materially increase our presence around the world, having added 35 new markets in 2019 alone, through both new hotel openings and conversions.

And that excludes the over 140 new markets we added through a significant expansion of our collaboration with small luxury hotels.

With respect to new signings, we continue to see strong developer interest in our brands.

Our development teams delivered another record year of signings, driving an increase of over 13% in our pipeline even after a record year of openings.

Our pipeline now amounts to approximately 45% of our existing system.

In similar fashion to the excellent execution and momentum we've established in our growth agenda, we have materially advanced our capital strategy and are driving an asset-lighter mix of earnings.

As we've discussed many times, an important outcome of our capital strategy is to accelerate the evolution of our earnings profile through outsized growth in our fee business and a concurrent reduction of our owned-asset exposure.

We have demonstrated and will continue to demonstrate an ability to successfully accomplish both.

In addition to the sale of the Grand Hyatt Seoul, as I mentioned earlier, we also completed 2 other transactions that demonstrate our commitment to our capital strategy.

First, the Hyatt Regency Portland.

This was a strategically important opportunity to develop what is now a magnificent 600 room headquarter hotel at the Oregon Convention Center.

We've recently sold our right to acquire this hotel to a longtime partner, and we realized a gain on this transaction of approximately $16 million upon closing.

Second, the Hyatt Centric in Philadelphia.

This was an opportunity we identified over 3 years ago to grow our then recently introduced Hyatt Centric brand, by developing a hotel in an important U.S. market in which we are underrepresented.

We closed on the sale of approximately 60% of our ownership interest in this hotel last week and received approximately $68 million in proceeds.

We expect this hotel to open in the summer of 2020.

In summary, over the last 2 years, we have sold approximately $2.4 billion of owned real estate at an average multiple of more than 17.5x estimated annualized adjusted EBITDA and retained a long-term management contract for every hotel sold.

The valuations realized in our dispositions and those embedded in our remaining assets, including our joint venture hotels, are materially in excess of the implied valuation the market has placed on our owned and leased business.

As we've demonstrated in the past, we believe we will continue to drive earnings growth, reduced capital intensity and expand free cash flow generation into the future.

Before I turn it over to John, I'd like to comment further on the COVID-19 outbreak.

As you know, this virus is having a significant impact on Greater China and has also affected travel patterns globally.

Guests and colleague safety is our number one priority.

And significant measures have been taken in cooperation with local authorities in many locations to manage the risks associated with the virus.

Joan will provide some color on this situation as it relates to how we are assessing the effects on 2020.

However, it remains unclear how long the impact of the outbreak of the virus will continue.

At this time, we are unable to estimate the magnitude of the full year impact on travel patterns and on our results.

As you know, we've operated in Asia Pacific for over 50 years, and we're confident that our brand strength, which allowed us to expand our presence and pipeline in Greater China over the past 5 decades, positions Hyatt for a strong future in these important markets, thanks to the experience of our leadership teams and our constructive and highly effective relationships with hotel owners.

I'll conclude my prepared remarks, this morning, by saying that 2019 was a year in which we executed well to drive solid operating performance and gain market share in the face of challenging conditions in parts of our business.

The strength of our brands and the excellence of our operating teams around the world gives us confidence that we will continue to drive solid operating results even if challenging conditions persist going forward.

2019 was also a year in which we continue to demonstrate the successful execution of our capital strategy, with almost $1 billion in asset sales, approximately 65% of our stated sell down target.

Finally, we opened a record number of hotels, signed a record number of deals and ended the year with the largest pipeline in our history.

I'll now turn it over to Joan to provide additional detail on our 2019 results and our expectations for 2020.

Joan, over to you.

Thanks, Mark, and good morning, everyone.

Late yesterday, we reported fourth quarter adjusted net income attributable to Hyatt of $49 million and diluted earnings per share of $0.47, adjusted for special items.

Adjusted EBITDA for the quarter was $191 million with a system-wide RevPAR decline of 0.5% in constant dollars.

The shift in the timing of the Jewish holidays had a negative impact on system-wide RevPAR of approximately 60 basis points, and Hong Kong drove an additional negative impact of 110 basis points.

Excluding both the earnings and integration costs related to Two Roads and the net impact of transactions, our adjusted EBITDA for the quarter grew approximately 8% on a constant currency basis.

As Mark mentioned, our RevPAR results were in line with our expectations, and our adjusted EBITDA was higher than our expectations.

Our fourth quarter earnings benefited from earlier-than-expected receipt of branded residences license fees, reimbursement of hotel preopening expenses as a result of the Hyatt Regency Portland transaction and lower SG&A, driven by strong cost management.

As to segment results, our mix of earnings from our managed and franchise business was at 58% of adjusted EBITDA before Corporate and other for the fourth quarter and 57% on a full year basis compared to 53% in 2018.

Asset sales during the second half of 2019, combined with the continued growth in our fee business will continue to shift this mix further toward a more fee-based earnings profile.

During the fourth quarter, we delivered growth in base, incentive and franchise fees on a constant currency basis of over 9% compared to the fourth quarter of 2018.

Base management and franchise fees were the primary drivers of the fee growth with a lower contribution from incentive fees as low levels of RevPAR growth placed pressure during the quarter on hotel-level operating earnings.

I would briefly cover our 3 lodging segments, starting with the Americas, which accounted for approximately 68% of our management and franchising adjusted EBITDA in the fourth quarter.

The Americas segment full-service RevPAR declined 0.6% for the quarter and was up 0.7%, excluding the impact of the shift in the Jewish holidays.

Select-service RevPAR declined 1.8%.

Total U.S. RevPAR declined 1.3%, with the U.S. full-service down 1.1%, with a similar holiday shift impact with U.S. select-service down 1.8% for the quarter.

Base, incentive and franchise fee growth of approximately 5%, drove adjusted EBITDA growth of approximately 6% for the quarter, both on a constant currency basis.

Full-service group rooms revenue in the U.S. decreased 2.6% in the quarter, driven entirely by group room nights and was impacted by the shift in the Jewish holidays.

The decrease in fourth quarter group business was driven by lower association business, partially offset by an increase in corporate business.

In the quarter, for-the-quarter bookings were down mid-single digits.

Fourth quarter production for all years was down approximately 9%, primarily due to higher levels of association bookings for periods, 3 to 4 years out during the fourth quarter of 2018 in anticipation of a decrease in third-party sales commissions we implemented in early 2019.

Looking ahead, group booking pace is up approximately 4% for 2020 and also up for each of the next 3 years, except for 2021, which is down slightly.

At December 31, 2019, approximately 80% of our group business for 2020 was already on the books, and we expect it to be a strong year for group business compared to 2019.

As a reminder, we had some particularly weak markets in 2019, where we have a significant presence, such as Chicago.

U.S. full-service transient revenue was up slightly for the quarter, driven by an increase in room nights, largely offset by a decrease in rates.

Moving on to our Asia Pacific segment.

This segment accounted for 20% of our management and franchising adjusted EBITDA in the fourth quarter.

Full-service RevPAR decreased 3.5% in the quarter and was up 2.2%, excluding Hong Kong.

South Korea was very strong, and we also saw growth in Japan and Southeast Asia, while full-service RevPAR in Greater China was about flat, excluding Hong Kong.

Base, incentive and franchise fees increased 1%, with new unit contribution overcoming the RevPAR pressure experienced during the quarter.

Total Asia Pacific fee revenue increased approximately 8%, benefiting from branded residence fees recognized during the quarter, which along with the efficiency in SG&A led to an increase in adjusted EBITDA of approximately 20% on a constant currency basis.

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

This accounted -- this segment accounted for approximately 12% of our management and franchising adjusted EBITDA during the fourth quarter.

Full-service RevPAR increased 7.2%, driven by a combination of occupancy and rate gains.

All regions in this segment showed RevPAR growth with Europe delivering the strongest results for the quarter.

Solid RevPAR and new unit growth for this segment helped to drive a 20% increase in base, incentive and franchise fee revenue for the quarter and an increase in adjusted EBITDA of approximately 28%, both on a constant currency basis.

Turning to our owned and leased business.

This segment accounted for approximately 42% of our adjusted EBITDA before Corporate and other in the fourth quarter and 43% for the full year.

Owned and leased RevPAR increased 1.4% in the fourth quarter or 2.6%, excluding the shift in the Jewish holiday timing.

Adjusted EBITDA for this segment decreased approximately 8% in constant currency, driven by the impact of asset sales.

Excluding the net impact of these transactions, segment adjusted EBITDA in constant currency would have decreased approximately 2%.

Our comparable owned and leased margins were flat during the quarter compared to the fourth quarter of 2018, an impressive result given wage inflation, combined with the low RevPAR growth environment in which we are operating.

Now that I've reviewed our operating performance, I'd like to cover shareholder capital returns.

We returned over $500 million to shareholders in 2019, including $421 million of share repurchases and $80 million in dividends, consistent with our prior guidance.

Additionally, during the fourth quarter, we announced a new $750 million share repurchase authorization, approximately $959 million remains under our existing share repurchase authorization as of February 14.

Turning to 2020.

We expect to return approximately $400 million in capital to shareholders this year, which includes approximately $39 million in share repurchases completed through February 14.

Our return of capital to shareholders will come through a combination of share repurchases and our quarterly dividend, which we have increased from $0.19 per share in 2019 to $0.20 per share with our first quarterly dividend of 2020 to be paid on March 9.

By way of reminder, we prioritize reinvesting in our business to drive additional growth and have also demonstrated significant capital returns to shareholders over time.

Turning to other aspects of our expected performance in 2020.

I want to first clarify that the guidance numbers I will be providing this morning do not include the potential impact of COVID-19.

After I cover our guidance, however, I'll provide some color on the potential impact the virus could have on our business.

And as a reminder, you can find details of our 2020 guidance in our earnings release filed late yesterday.

We expect full year 2020 system-wide RevPAR growth in the range of negative 0.5% to 1.5%.

We continue to expect RevPAR growth in the U.S. to be a bit lower than RevPAR growth internationally.

And expect select-service RevPAR growth in the U.S. to lag full-service growth.

We expect our 2020 adjusted EBITDA to range from $760 million to $780 million.

That range reflects a $35 million net reduction in adjusted EBITDA from real estate sales completed during 2019.

And also reflects the elimination of onetime integration costs of approximately $20 million incurred during 2019 related to the Two Roads acquisition.

Excluding the impact of these items, we expect our adjusted EBITDA to grow by about 4% versus 2019 using the midpoint of the range.

Adjusted SG&A for 2020 is expected to be approximately $320 million.

The decrease from adjusted SG&A of $329 million in 2019 reflects the reduction of Two Roads integration costs, partially offset by increases in compensation-related costs.

Capital expenditures for 2020 are expected to be approximately $250 million, more than $100 million less than 2019.

We have significantly reduced our capital expenditures through the continued execution of our capital strategy, including our recent sale of an approximate 60% interest in the Hyatt Centric Philadelphia.

The only material construction-related expenditure we have relates to the completion of the Miraval property in the Berkshires, which we expect to open during the second quarter of this year.

Net rooms growth for 2020 is expected to be in the range of 6.5% to 7%, inclusive of the termination of the Ocean Resort at the beginning of 2020.

The Ocean Resort was a 1,400 room franchise operation that -- while significant in room count, had a very modest fee contribution due to the nature of the contract.

Excluding the Ocean Resort termination, our 2020 net rooms growth would be in the 7% to 7.5% range.

As Mark noted earlier, we had a record year of signings and delivered double-digit growth in our pipeline, notwithstanding a record year of openings in 2019.

Our robust pipeline gives us confidence we can deliver strong net rooms growth well into the future.

I'll now provide some additional information on the potential financial impact of COVID-19.

Concerns related to the virus and specific actions taken to contain it have caused the complete closure of 26 of our hotels in Greater China and many others that remain open are running at very low occupancies.

There is no question there will be an impact to our results, but it's simply too early to reasonably quantify what the full year impact to our business in 2020 might be.

I'd like to share 3 points to illustrate how we're assessing the impact as the situation evolves.

First, going forward, we have virtually no owned and leased exposure in the region after the sale of the Grand Hyatt Seoul late last year.

Second, the proportion of our consolidated base, incentive and franchise fees coming from Asia Pacific is approximately 22% for the full year and 11% in Greater China, where the most significant effects are being felt.

And third, there is certainly an impact on other Asia Pacific markets due to the pattern of outbound Chinese travel to those markets, coupled with the current travel restrictions in the region.

However, the outbound Chinese travel to global markets outside of Asia Pacific makes up a very small percentage of our rooms revenue.

And as a point of reference, inbound Chinese travel into the U.S. makes up less than 1% of total rooms -- U.S. rooms revenue.

Using our analysis, we estimate that for every one point of decline in Greater China RevPAR, the impact to our consolidated adjusted EBITDA will be in the range of $1 million to $2 million.

With respect to our net rooms growth guidance, it is too early to assess the full impact the outbreak may have on construction progress in Greater China this year.

What I can tell you is that the majority of our Greater China openings were originally planned for the first half of the year, which provides some cushion but we do have a few hotels scheduled to open later in the year, which could have a negative impact of 30 to 40 basis points on our full year net rooms growth guidance, should construction delays of up to 3 months occur in those markets.

We continue to monitor the COVID-19 situation closely, and our teams are aggressively working to minimize the negative financial impact on both our owners and on our financial results.

I will conclude my prepared remarks by saying that I have great confidence in the resilience and capabilities of our team in Asia Pacific, to proactively and thoughtfully manage through the current challenges in the region.

I'm proud to say we have deep and strong relationships with our owners, an excellent brand reputation and a strong long-term growth outlook in Greater China and the Asia Pacific region.

Overall, we are pleased with our 2019 operating results and our continued ability to drive industry-leading levels of growth.

We continue to successfully execute our capital strategy, driving a shift in our business towards fee-driven earnings, while preserving our absolute levels of earnings over time.

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

(Operator Instructions) Our first question comes from the line of Smedes Rose from Citi.

Maybe just -- you mentioned, I think, $1 million to $2 million of China-related fees for every one point in RevPAR decline.

Could you -- just what have you seen so far to date in terms of overall RevPAR decline for your China exposure?

Thanks, Smedes.

I'll give you a little bit more color.

I'll expand a little bit more on what we're seeing and how we think about the sensitivity that I just mentioned.

So through month-to-date in February, we've seen Greater China down 90%, with 26% of the hotels closed, as I mentioned, and the remaining hotels reporting single occupancies.

In Asia Pacific, overall, excluding Greater China, month-to-date, February is down 32%, given the outbound travel and the general restrictions that are currently in place in the region.

And January is not a good benchmark for us to use as we started the month out very strong in the first half with sharply declining conditions in the last 2 weeks leading into and through the Lunar New Year.

But I'll just back up a minute now to give you a way to think about the sensitivity.

So as I said in my prepared remarks, we expect 1% of Greater China RevPAR decline to equal $1 million to $2 million of EBITDA on an annual basis, and that includes the impact of outbound travel.

So for example, if full year China RevPAR was down 10%, the full year impact would be about $10 million to $20 million or $15 million at the midpoint.

So if Greater China RevPAR declined 20%, the full year impact would be $30 million at the midpoint.

So where we are in the range depends on the nature and extent of the stabilization period and recovery, and we don't presently believe that the current conditions will persist for an extended period of time.

So I just want to add a couple of things to that, Smedes, sorry.

First of all, I think Joan might have cited just now 26% of the hotels are closed, it's actually 26 hotels that are closed, not 26%, just to be clear about that.

But the only other thing I would add is we are operating in the same market that everyone else is.

I think the key issue that we're focused on right now is how our teams are responding and how we can proactively engage and manage this situation.

And I can tell you that we've come into 2020 with great momentum.

We had significant share gains in the fourth quarter in China, the top 5 markets, which for us in China include Shanghai, Beijing, Shenzhen, Guangzhou and Hangzhou, we were up almost 6 points of market share in the fourth quarter.

If you look at China, excluding -- Greater China, excluding Hong Kong, Macau and Taiwan, we were up almost 4 points in market share.

And even including Hong Kong and Macau, which had a structural headwind for us because of our casino room block, we were up over 2 points of market share, over 200 basis points.

So we've come into this year with tremendous momentum in our relative performance.

And in fact, the first 2 weeks of January were quite strong throughout China.

So I guess, what I would tell you is, yes, we're going to focus on how we can mitigate the impacts and so forth.

The fact is we live in the market along with everyone else.

And I think the key for us is maintaining that -- the strength of our relationships and the strength of our performance on a relative basis, and that's what I think you'll see from us this year.

I appreciate the extra detail.

And I just wanted to ask you, you mentioned that select-service, you -- in the U.S., you continue to see that underperforming relative to the full-service.

And I think we're probably getting to a point where you're starting to lap negative comps there.

And I'm just wondering is it -- I mean the sector, in general, has shown weakness.

But I'm just wondering if there's any color you could provide for your properties in terms of what you're seeing on the supply front or just relative RevPAR index?

Yes.

Thanks, Smedes.

We have seen some pressure last year, as we've talked about over the course of the year with respect to supply and demand and our concentration of hotels in particular markets that have been under maybe outsized pressure from that front.

But we have seen our results over the course of the year improved, and we are lapping the brand programming changes that you mentioned.

So we've seen better results in Q4 relative to previous quarters.

And we've started off the year to seeing some better results in the segment.

Yes.

I would just also add that we believe that we got another maybe a month or so of some dislocation from the actions that we took over a year ago in terms of lapping that to get to a better -- more run rate kind of comparisons.

And at least, as we entered this year, our January results show that we are basically in line with where the sector -- where the segment is.

So we feel -- and by the way, just by way of reminder, the reason for the actions that we took more than a year ago was to build World of Hyatt penetration in the brands, Hyatt Place [behind other] brands, which we've achieved, we're up over 600% in terms of room night penetration for our loyalty members within those brands.

So we've accomplished that, and we will -- we believe that we will be back in line with or better than the segments as we move forward.

Our next question comes from the line of Stephen Grambling with Goldman Sachs.

I guess on the owned and leased commentary, I think you mentioned that you still feel that the remaining assets that have not been part of the permanent asset reduction are still not reflected in the value of your stock.

Can you help us generally assess the value of the remaining assets relative to what you've sold?

And maybe as a follow-up, do you have any properties currently being shop-for-sale this year?

And would buybacks still be the primary use of proceeds?

Sure.

So look, we have spent a lot of time with and in and around our own portfolio for all the reasons that you understand, which is preparing for, executing and then managing the aftermath of asset sales.

And I believe that we've had very good visibility into our own portfolio for a long time.

Whether that includes our -- I think, clear-eyed assessment about the actual underlying value of a number of very unique properties that have a significant inherit value because of their market position and because of their location and their performance.

And frankly, we've just demonstrated it.

We've evolved from the point where we asserted a value, which really didn't catch any impact with respect to how people viewed our company value.

And what we've done over the last certainly 2 years but even longer than that is just continually deal after deal, quarter-after-quarter, demonstrating the value of our real estate, and we will continue to do that.

We believe that the remaining portfolio, which includes a number of JVs that are -- JV hotels, rather, that are only now opening and ramping at this point in time.

So their earnings are not reflected fully in our results but will be over time.

Simply stated, are worth more from a multiple perspective than where we're trading.

So I just don't believe that it's properly reflected still, and we are convinced that the only way that it will be is once we actually demonstrate it, which we have done and we'll continue to do.

With respect to current activity, we don't have anything being marketed at this point, so to speak.

We do -- we're in discussions with several parties on a couple of different hotels, both on the buy side and the sell side, by the way, which is our typical practice.

We're active in the market on a regular basis, given the nature and some -- in some cases, very unique nature of our assets, we do get approached on an unsolicited basis.

And so we are in discussions on a couple of assets right now.

Hard to say, too early to say whether and when we would execute something.

And finally, with respect to use of proceeds, always looking for opportunities to expand what we're doing.

Our focus has been and remains looking for fee-based or non-real estate intensive acquisitions in our industry.

In many cases, I would say, in all cases, brands don't get started or don't evolve and expand and scale without capital put into real estate.

So in many cases, we look at opportunities that include real estate, but we would look to sell down real estate if we were to make an acquisition that included real estate.

But -- so that's really what we're going to focus on, first and foremost.

Over the last couple of years, we started off with initial guidance and ended up significantly expanding the return of capital to shareholders because we are being prudent about retaining some capital and flexibility to execute on deals, but always in the backdrop have in our minds, return of capital to shareholders.

So that's how we will continue to balance what we do over the course of this year.

That's helpful.

And maybe as a quick follow-up just on some of your comments.

Are you seeing more opportunities to pursue fee-type or asset-light deals?

Or are you still kind of in digestion mode within Two Roads?

And then on the JV hotels, are those -- would you generally say those are valued higher or lower than the assets you've sold already?

With respect to where we stand and what we're seeing, the answer is we -- there have been a number of things that we've had the opportunity to look at over the past year and continue to be.

The issue for us is really focusing on customer base and making sure that the acquisitions that we look to execute, have a customer base that fits into the strategy that we've pursued and is an enhancement, not just an addition of a bunch of rooms and some fees, but really something that carries with it more strategic impact and more -- ultimately more financial impact and leverage for us.

So that's a key screen that we've applied.

I think the other close second screen item is growth.

We've looked at a number of interesting potential acquisitions over the past year that had wonderful embedded assets, but no growth.

And so that's not particularly attractive to us, which leads me to Two Roads.

I think as I look at Two Roads, we are complete with -- as far as we're concerned, we have some remaining items that we are actively finalizing with respect to the integration process, but we've made tremendous progress over the past year.

It has been a very tumultuous year from a portfolio perspective.

We started off with about 12,000 rooms.

We ended with about 10,000 rooms except for about 500 rooms that have been moved from historically Two Roads hotel brands into historically Hyatt brands.

So maybe in total, if you're trying to keep track, it's 10,500 rooms.

But ultimately, the integration was really -- achieved something very important for us, setting up a lifestyle division that has great focus in terms of how we go to market.

That has yielded a tremendous increase in discussions that we have underway.

Our formal pipeline, which is screened very rigorously is about 5,000 rooms across the 4 brands that we acquired.

But the deals under discussion are many fold bet because we've really focused and concentrated on going to market with an integrated lifestyle team.

That's now in place and fully integrated into our Americas operation with coverage for Alila out of Asia Pacific and EAME.

So I would say that we're locked and loaded and ready to expand that platform.

And back to my underwriting criteria, what we're really looking forward to do now is accelerate the growth.

So we want to convert those discussions into pipeline, into open hotels.

But we stand ready and have the capability and capacity to take on an additional acquisition or a new acquisition if we were successful in finding something.

JV Value?

Oh, on the JV values, I think the -- what we're seeing is -- and we'll provide you more of an update on this as we move forward.

But we've opened something like 22 new hotels out of -- in the context of JVs over the last 5 years.

And in many, many cases, we have either traded out of our positions before they've opened to bring capital partners in to allow us to recycle that capital into other investments.

Sometimes we've actually dispose off our investments -- our share in JVs or sold the hotel that underlies the JVs.

We've done all of those.

And the returns have been very healthy along the way and really on a risk-adjusted basis, excellent.

A lot of these deals include us serving as preferred capital.

And what I would say to you is that the big opportunity that we see going forward.

And in fact, you see it in our numbers as we head into 2020 is ramping of new hotels that have opened, of which we have a number that are relatively newly opened and ramping nicely.

So I think you'll see twofold.

First, you'll see momentum in our earnings base out of the JVs and secondly, you'll see more transactional volume with respect to JV hotels.

Our next question comes from the line of Patrick Scholes with SunTrust.

Question for you about sort of the impact of the virus in other countries in Asia Pacific, certainly, everybody there realizes it's not going to be great for Greater China, but the concern more is what is the sort of the redo-er to other locations?

And you do have some owned or JVed hotels in Bali, for example, I'm wondering what you're seeing as far as booking and RevPAR trends for those?

I think Joan and I will sort of tag team this, but I'll just start by saying if you think about the impact in concentric circles radiating out of China.

That's the easiest way and the most effective way to think about it because the biggest impact is in the immediate circle, which is going from what was previously known as sort of Mainland China to Greater China, including Hong Kong, Macau and Taiwan.

That's -- that ring has significant impact.

And then as you go further out to the countries that are then impacted, you include Thailand, you include South Korea and you include Vietnam.

And then if you go further out, you've got Singapore, Japan and Indonesia and ultimately, Australia.

Australia has had other issues with their wildfires.

So I think the impact is just -- it's greatest in the epicenter of the Mainland, but then it radiates.

We've had a number of hotels reporting significant declines in bookings that are entirely driven by Chinese travel and including Bali.

Bali has seen -- as a market, starting in February, a pretty significant decline in inbound travel overall.

But Singapore has as well.

And actually, Japan has as well.

So I would say we've seen it radiate across the globe.

But it dissipates or the degree of the impact starts to dissipate the further you move out.

If I look at the rest of the world and exclude Asia Pacific for a second, we've had a very, very good beginning of the year.

We're up in the Americas, we're up in Europe, in line with what our expectations were.

Business is actually relatively solid across the board.

As we look forward, we, in February, I would -- this is really recent data.

So I'm not prepared to just extrapolate from this.

But we have seen some increase in cancellations, and that increase -- by the way, we saw no increase in cancellations in January, in fact, probably at or below where we were a year ago.

But coming into February, we've seen some in markets outside of Asia Pacific, 100% of which as far as we can tell at this point relate to the virus.

They are primarily small meetings.

They're primarily in technology and consulting companies.

And there are -- we've seen a little bit of activity in cancellations in places like Dubai and there was one other market, Dubai and India.

But apart from that, the other cancellations that we're picking up are in the U.S. So that group business is -- we're paying special attention to that.

We don't think it's going to be significant in these markets outside of Asia Pacific.

But we continue to monitor that closely.

Your next question comes from the line of Jared Shojaian with Wolfe Research.

Can you just talk a little bit more about what happened with the Ocean Resort contract?

And I guess, excluding that property, it sounds like the unit growth for 2020 would have been slightly higher than the prior guide if I'm understanding that correctly.

So can you just help me understand the puts and takes to that as well?

Sure.

Thanks, Jared.

So the resort is a large casino on the Boardwalk in Atlantic City, 1,400 rooms.

That singular hotel has an impact of about 60 basis points on our net rooms growth calculation.

The hotel -- as is true for many casino hotels when a brand affiliates with a casino operator, oftentimes, there is a very structured way in which we engage with the owner because they retain control over a large measure of their inventory for purposes of serving their gaming business, which is very typical.

It's pervasive throughout the industry, and this was no exception.

We signed an arrangement in which we were helping the resort get on the map, and we had a very structured way in which the franchise agreement was implemented and limited the actual amount of inventory that we were really selling through our system by virtue of these kinds of room blocks.

So that's why the fee base was low.

We don't have a lot of these arrangements, but this is an example of a market that we really have no penetration in as a high-quality asset.

And when the casino went through an ownership change, the new owners decided to go a different direction in terms of distribution channels.

And so that's what happened there.

Did you have a second part of your question, I'm sorry, was that?

Right.

I guess, excluding that, it looks -- I mean I think you said 7% to 7.5% net rooms growth for the year, which is slightly higher than (inaudible).

Yes.

You can actually just add 60 basis points.

That's about how you...

The midpoint.

About 7.3%.

Yes.

Right.

Okay.

So were just other properties coming online faster?

Because I guess that was slightly higher than the prior guide?

I think the fact is that the difference year-over-year is not really openings.

In fact, we've had plenty of headwinds with respect to getting hotels open on initial schedules.

So that continues to be something we've talked about that in the past that it remains true.

The good news is that the hopper is so full that we're able to continue to maintain that pace of openings and drive this kind of net rooms growth.

I would say that the other thing that was really a wonderful positive in 2019 was conversions.

We realized a great deal of conversions over the course of the year, which was additive to our total growth rate.

And I believe that we will continue to see some of that momentum as we head into this year.

And so I think that that's a positive.

We do have some risk, as Joan mentioned in her prepared remarks with respect to openings in China.

With respect to the pipeline openings, generally, we believe that the concentration of the impact, if any, from the virus will be in Greater China.

We've evaluated the impact of supply chain openings outside of Greater China.

We have a relatively diverse supply chain in terms of furniture, fixture and equipment for new openings.

So we don't think we are -- we have significant risk in that area.

We have spent some time actually diversifying.

If I look backwards in time, and we are actively looking for alternative suppliers today, just to make sure that if we do hit some roadblocks with respect to furniture, fixture or equipment coming out of China that we have some alternatives developed.

But right now, we don't believe that that's going to have a material impact on our openings this year.

Okay.

And then just on capital deployment, is there any desire to increase leverage now that the business model's become more fee-based with more predictable cash flows?

And then I guess, just on that thought as well.

I was a little surprised to only see $400 million of planned capital return for 2020, is that just because there's still some uncertainty as to what you may purchase in the year?

You said you're looking at some things on the buy side as well.

And if you don't buy anything, should we expect that that capital return is meaningfully higher than $400 million in 2020, is that a fair way to think about it?

You want to start?

I'll start with the capital return question.

We came out with $400 million as our preliminary guidance this year.

And we believe that this is a level that is responsible and provides us some flexibility in the environment with -- now with lower RevPAR growth going into the year and also provides us optionality, as you noted, as we consider other opportunities for reinvestment, which is our number one priority.

And I would just say with respect to the first question, we will -- our attitude with respect to leverage is, first rule is, remember that we're in a cyclical business.

Second rule is don't forget the first rule.

So we're going to maintain our current outlook with respect to leverage.

We will evaluate relative leverage over time.

But I think at this point, we will maintain our current practice, which is to make sure that we retain an investment-grade level and flexibility.

We really want to maintain our capital base so that we can act on opportunities when we find them.

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

I just have two.

One, probably a little bit more of a clarification, Mark, I think.

We were looking at the guidance in the joint venture line.

And it looks like there's some pretty strong growth that you're expecting looking out to 2020.

I think you alluded earlier in a response about joint ventures and how some of the -- some maybe prior investments were starting to add up there.

But could you just either validate that that's what that is or any specific callouts on what could be driving the strong growth in 2020?

And then another follow-up would be just a little bit more color on your outlook for the owned and leased margins as we look out to 2020?

I think, Joan, you said that owned and leased margins were flattish in 4Q, which is a great performance.

Just kind of how are you seeing that line up as you look out to 2020?

Should I start with the margins?

Yes.

So on the margin front, Shaun, we're very proud of the results that our teams have generated in the fourth quarter.

We had RevPAR growth of 1.4% for the owned hotels, and it was partially impacted by lower group results there in those hotels.

But I'd attribute it this flat margins in that environment to the continued strong focus from our operations teams and application of best practices as it relates to improved profitability.

We're realizing strong rates in that portfolio.

The 1.4% of RevPAR growth is primarily driven by rates, and we continue to find ways to improve our food and beverage profitability.

And we've seen, lastly and importantly, increased productivity measures across all areas of the hotels and in the face of rising wages.

So we've continued to see this.

And this year, as we think about -- there'll continue to be pressures with respect to rising wages and we'll respond accordingly.

On your joint venture question, I would say that a majority, maybe 60% of the total year-over-year progression in JV earnings is coming from ramping properties.

Some things that have opened over the last year that are now ramping up.

We've got some very high-quality assets in that portfolio, a couple of hotels that have just opened, the Hyatt Centric in Portland (sic) [Philadelphia] comes to mind.

We've got several select-service hotels largely on the West Coast, but we are opening a new hotel in Boston, a large Hyatt Place, which will be a JV, I think, for its initial life, but actually, our arrangement with our partner in that deal is that they will take us out within a certain amount of time, relatively short amount of time after opening.

So -- but if you look across the portfolio, we've got some really good ramp underway, which does represent about 60% of that progression year-over-year.

And what about the other 40%?

It's performance of the joint ventures themselves.

And Shaun, we just called that out last year, as a headwind in 2019.

Some of the ramping hotels were coming through a little bit slower than we had expected.

So now we're seeing the strength of the ramp going into 2020.

Yes.

In that progression, the other 40% that's run rate, if you will, or core or same-store might seem high to you.

But some of the joint ventures that are on our portfolio are in markets that really had a tough 2019 and our outlook for those markets has improved.

So that's part of what you're seeing here.

So we've already suffered the pain of challenging market conditions in 2019 in a number of those markets.

And I think our outlook is more constructive for 2020.

Our next question comes from the line of Michael Bellisario from Baird.

One more on guidance.

Can you provide an update on Miraval and then the construction delays that you experienced there?

And then what amount of ramp-up are you including in 2020 numbers?

Yes, happy to do it.

This is going to be a transformative year for Miraval, for sure.

We will finally have all 3 hotels opened and operating by the middle of this year.

We are on track from the last update we provided to you with respect to Lenox, the Berkshire -- the Miraval in the Berkshires.

So you'll see that property open -- fully opened and operating as a Miraval by the end of May.

We have opened the year very strong.

We are running well ahead of last year, sort of double-digit -- sort of in the range of 12% to 13% increase in revenue in our Tucson property year-over-year.

This is one month, but still an indicator of how we're getting kicked off.

And we're well ahead of our expectation for January in Austin, which is really just ramping, primarily driven by significant increases in both occupancy, but also rate.

The thing that I'm encouraged to see, though, is in both of these hotels, a significant amount, in fact, the plurality, not a majority, but a plurality of the revenue base comes from what I would describe as nonrooms revenue.

Actually, if you include food and beverage, it is a majority of the revenue.

And in those cases, the increase, the variances are quite positive, which means that the resorts and the positioning is -- are fulfilling the intended purpose, and we're getting the right customer base who is not just prepared to pay for those services in the hotel environment but happy to.

And we've got a lot of return customer base.

By the way, the other thing that I would say about Miraval is we've been very surprised at the World of Hyatt penetration at Miraval.

We expected it to be maybe in the mid-20s, and we're actually between 35 and 40 at the moment, which is really a testament to the very high-end customer base that we currently have in the World of Hyatt base.

So that's how we're starting on operations.

In terms of ramp, we have preopening expenses and a significant measure of marketing expenses for the Berkshires because the primary markets are New York and Boston, they're not cheap to market in.

So we are doing that aggressively.

But the total ramp that we expect year-over-year from Miraval will probably be in the range of about $9 million.

That might be a little bit less than we initially would have modeled, except for the fact that Miraval -- the open and operating properties, Tucson and Austin finished the year, last year, much stronger than we had initially expected.

That's part of the positive variance that we saw in the fourth quarter.

So we actually did better than our forecast last year, we're starting from a higher base, and therefore, the progression may seem a little less pronounced.

So that's really where we are with Miraval.

Kenzie, we'll take our last question now.

Our last question comes from the line of Carlo Santarelli from Deutsche Bank.

I'll be relatively quick.

I was just curious, Joan, when you were going through kind of the group pace this year.

I was hoping you could kind of clarify the 4Q '18 tough comp that was created and made for the challenging 4Q '19 in the quarter, for the quarter?

And then as it pertains to the 2021, 2022 and 2023 group business on the books.

What percentage of that business is on the books in each of those years, if you could share that?

Actually, if you don't mind, Joan, I'll take this.

I have spent a lot of time on this subject as we've been disaggregating the numbers and a couple of things I just wanted to point out.

First, group in the fourth quarter was down 2.6%, but actually up 0.6% after you take out the Jewish holiday, so relatively good.

The thing that I would say thematically was true, over the course of 2019, in terms of our actual performance, booked rooms revenue is that corporate was very, very strong.

Very strong means up in the low teens in terms of total revenue, which by implication because we had -- we actually published a decline in total group room revenue means that association was negative.

So what's happening?

What's happening is that over the course of 2019, we had significant wash, meaning the number of attendees to large meetings and associations held at a number of our hotels was lower than our expectations.

And even as our large convention hotels did a great job of backfilling a lot of that capacity with transient business, especially leisure transient, we still took, as a group matter, a hit on the association side.

So as we look at production, group production in the quarter was down almost 9%.

All of that was December.

What's happening is that we saw in December of 2018 and January of 2019 and February of 2019, significant increases in production during that period of time.

The reason was because we had announced a commission shift and all of the meeting planners and other intermediaries rushed to book association business during that period of time.

So the production levels during December of '18 and then January and February of '19 were just at an elevated level, and we're lapping that now.

But if you look at the core production in corporate, it's very encouraging.

If I look at the pace as we look forward in time, as Joan mentioned, 2020 is up a bit over 4%.

That's evenly balanced between demand and rate.

About 80% of that -- a little over 80% of that business is booked now, already.

If you look at 2021, it's down modestly.

All of that is currently room nights driven, not ADR, ADR is up a bit.

And about 50% of that business is booked currently.

And if you look at 2022, where we're up in the mid-single digits, mostly in volume demand and a bit in rate as well, over about 1.5 of rate improvement.

We're about 35% booked into 2022.

The last thing I'll say is in terms of group, the top 4 areas, high-tech, banking and finance, pharma and manufacturing are all up mid- to high single digits across the board for the year looking forward in terms of bookings, which I find very encouraging.

It means that our -- the real positive large customer relationships that we have are very productive.

The last comment I'll make is on the leisure front -- sorry, on the transient front, is that in the same way that the year last year was all about corporate.

And as we head into -- for group that is as we head into 2020, we think it will be more balanced group and association -- corporate and association.

The story of transient last year was leisure.

Leisure really was the producer of our transient results with business transient flattish, maybe down a little bit over the course of the year.

So that's really how we've come into this year, our core leisure base in our -- at least the leisure customers that we serve, which are relatively higher end.

They are solid and the attitude and orientation towards bookings and vacations remains very good.

So that's where we are.

This concludes the Q&A session for today's call.

I will now turn the call back to Brad O'Bryan for closing remarks.

Thanks, Kenzie, and thank you to everyone for taking the time to join us today.

This concludes today's conference call.

Thank you for your participation.

You may now disconnect.