Hyatt Hotels Corporation
Q4 2020 Earnings Call Transcript

Published: 18 Feb 2021

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Hyatt Fourth Quarter 2020 Earnings Conference Call. I would now like to hand the conference over to your speaker today, Mr. Brad O’Bryan. Thank you. Please go ahead, sir.

[Brad O’Bryan:]

Thank you, Carol. Good morning, everyone and thank you for joining us for Hyatt’s fourth quarter 2020 earnings conference call. Joining me on today’s call are Mark Hoplamazian, Hyatt’s President and Chief Executive Officer and Joan Bottarini, Hyatt’s Chief Financial Officer. Before we get started, I would like to remind everyone that our comments today will include forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K, quarterly reports on Form 10-Q and other SEC filings. These risks could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued yesterday, along with the comments on this call, are made only as of today and will not be updated as actual events unfold. In addition, you can find a reconciliation of non-GAAP financial measures referred to in today’s remarks on our website at hyatt.com under the Financial Reporting section of our Investor Relations link and in yesterday’s earnings release. An archive of this call will be available on our website for 90 days.

[Mark Hoplamazian:]

Thank you, Brad. Good morning, everyone and thank you for joining us on our fourth quarter 2020 earnings call. Before I begin this morning, I need to take a moment to express my heartfelt condolences to the Sorenson family and to all of our friends and fellow hoteliers at Marriott in recognition of Arne’s passing this week. From the moment I joined the industry, Bill Marriott and Arne welcomed me with a deep generosity of spirit. They were quick to provide me their perspectives. And when it was appropriate to join forces on behalf of the entire industry, Arne was always a steadfast partner. Most important to me, he was a kind and good person. And I will miss him and his friendship dearly. He will live on in our hearts and through the work that we carry forward on behalf of the industry that he so loved. As I reflect on all that we have endured over the past year, I recall that during our fourth quarter earnings call one year ago, I shared the unique challenges that our Asia-Pacific team was navigating relating to the emergence of the COVID-19 virus in China. Little did we know at that time that what appeared to be a serious but somewhat localized medical crisis would quickly develop into a global pandemic that remains in our daily headlines and has changed so many aspects of our lives. None of us could have imagined the impact that the virus would have on our industry. But the Hyatt family responded swiftly and meaningfully to position Hyatt to not just navigate the crisis but to be in a position of strength as we head into recovery and beyond. We took the difficult but necessary steps to reduce headcount and discretionary costs, resulting in an over $100 million reduction in SG&A expenses, excluding bad debt expenses as compared with our original 2020 guidance. In addition to this, we effectuated a more than $150 million reduction in costs incurred on behalf of our managed and franchised properties. We implemented these changes just 2.5 months after the very first lockdown in the U.S. We work with our owners to close hotels where appropriate and quickly right-sized hotel operations and staffing levels to support significantly reduced levels of demand. We also supported our third-party owners providing both fee concessions and some deferrals of amounts owed for system services and certain other fees, while at the same time, negotiating new lower-cost arrangements with third-party vendors. We amended our revolving credit facility and issued bonds totaling $1.65 billion to secure significant liquidity to be able to support current needs and be positioned to invest in new opportunities once we have more visibility on the shape of the recovery. And we promptly rolled out our global care and cleanliness commitment including important health and safety protocols for our guest and our colleagues.

[Joan Bottarini:]

Thank you, Mark and good morning everyone. I would also like to express my sympathy to the Sorenson family and the Marriott organization. Arne’s leadership and generosity will be missed deeply throughout our industry across the globe. Late yesterday, we reported a fourth quarter net loss attributable to Hyatt of $203 million and a diluted loss per share of $2. Adjusted EBITDA for the quarter was negative $98 million, with a reported system-wide RevPAR decline of approximately 69% in constant dollars. As has been the case for each of the previous two quarters, our reported system-wide RevPAR decline are impacted by both the inclusion of closed hotels in the calculation and by our chain scale composition, which includes significant exposure to upper upscale and luxury properties and to top 25 markets in the U.S. As has been widely reported, the upper upscale and luxury segments and top 25 markets in the U.S. have been weaker since this pandemic began. As of December 31, 94% of our hotels or 93% of our rooms were open. The impact of closed hotels on our fourth quarter reported system-wide RevPAR results, was about 370 basis points. Our comparable system-wide RevPAR in the fourth quarter was down approximately 65% from last year, excluding closed hotels. Our fourth quarter adjusted EBITDA loss includes $45 million of costs incurred on behalf of our managed and franchised properties that we do not intend to recover from our hotel owners. As a reminder, our contractual arrangements allow us to collect amounts from managed and franchised properties to reimburse us for system-wide services and program costs. We do not profit from these arrangements as they are structured with the intent to manage these revenues and costs to breakeven over the long term. The reimbursement revenues for these system-wide services decreased significantly in 2020 due to the lower contractual amounts collected based on lower hotel revenues, in addition to certain concessions we provided to our owners to help with their cash flow. In total, we collected almost $200 million in reimbursement revenue in 2020 than originally expected. We took action to reduce costs incurred, representing about three-fourth of that lower reimbursed revenue through aggressive cost management efforts undertaken during the year. The remaining costs in excess of reimbursement revenue amounted to $45 million and their inclusion in adjusted EBITDA was the result of our decision to continue to provide these critical system-wide services and programs on behalf of our owners, while not intending to recover these costs from owners. Importantly, I want to remind you of what I covered in our Q3 earnings call that the cash impact of these amounts is included in our monthly cash utilization previously we referred to as our cash burn. I would like to now provide a few additional details on our operating results for the quarter. Our management and franchising business continued to drive profitable results with a slight increase in adjusted EBITDA sequentially over Q3 when excluding bad debt expenses we recognized. Bad debt expenses were $14 million in the fourth quarter and $33 million for the year, which is far in excess of the levels we’ve recognized in the past. Our base incentive and franchise fee revenue decreased by 67% compared to 2019 on a 69% reduction in system-wide RevPAR. Fee revenues were helped by contribution from new hotels opened over the past year. China and select service in the Americas were again our primary areas of strength during the quarter, collectively making up about 50% of our total fourth quarter management and franchise fee revenue and both delivering extremely strong market share gains as we continue to significantly outpace the competition in these areas. About 60% of our global managed hotels delivered positive gross operating profit during Q4, with almost 100% of our Greater China hotels delivering positive GOP. Our continued focus on efficient hotel operations and maximizing GOP flow-through, which reached levels greater than 50% in the fourth quarter, has yielded strong results on the bottom line during this challenging demand environment. Our owned and leased segment RevPAR decreased 82% compared to 2019. The impact of closed, owned, and leased hotels on our reported RevPAR decrease was 660 basis points. While the fourth quarter RevPAR results were slightly positive compared to Q3, we drove enhanced efficiency, resulting in strong flow-through and improved adjusted EBITDA results for the quarter at a loss of $48 million compared to a third quarter loss of $56 million. This is particularly notable as we reported an $11 million increase in owned and leased revenue and no expense growth from Q3 to Q4 resulting in a 100% revenue flow-through quarter-over-quarter. While this flow-through performance was partially helped by certain lower non-operating expenses, it is a solid proof point of our strong operating expense control. Approximately $42 million of the $48 million fourth quarter losses are coming from owned and leased hotels excluding the impact of joint ventures. Further, about one-third of our owned and leased rooms, concentrated in urban markets like New York and San Francisco are driving about two-thirds of the losses. Across our owned and leased portfolio, the vast majority of losses are driven by fixed or non-controllable costs in both open and closed hotels as we have very effectively reduced controllable costs in our operating hotels, laying a foundation for reduced breakeven levels into recovery. Resort hotels continue to drive the strongest performance in the segment due to relatively higher demand for those types of stay experiences. Before providing an update on our liquidity and cash utilization, I did want to follow up on an item Mark covered earlier with respect to our capital strategy. As we’ve discussed previously, one of the important outcomes of our capital strategy is a meaningful shift and greater proportion of our earnings base derived from our management and franchising operations. Prior to the disruption caused by COVID-19, we have been reporting our progress by way of the increasing percentage of earnings coming from the fee business and at the end of 2019, had achieved almost 60% compared with 43% in 2016, just prior to accelerating our asset-light transition. Given the outsized earnings impact of COVID-19 on our owned and leased operations, the actual mix we are recording is clearly distorted. Upon completion of our asset sale commitment of $1.5 billion by March of 2022, we expect to achieve an earnings mix of approximately two-third from management and franchising and one-third from owned and leased as we shared with you at our Investor Day in March of 2019. I would note that this projection assumes an otherwise normal demand profile, which may not have occurred by that time, depending on the nature of the recovery. I would also note that, thanks to significant organic growth over the 2022 to 2024 period, we would expect fee earnings to further shift to an approximate 70

[Operator:]

Thank you. Your first question comes from the line of Stephen Grambling with Goldman Sachs.

[Stephen Grambling:]

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

[Mark Hoplamazian:]

Thank you very much, Stephen. I will start. There is a China dimension to the learnings that I’ll ask Joan to comment on after I make a few comments on how we are looking at the business at the moment. So, let me just start off in the general vicinity of how we see group and transient dimensions evolving. And maybe I will start with the conclusion, which is I am really pleased, if not surprised, to report that we are seeing some interesting and very positive data in group activity. So, some context, looking back over 2020, we realized a bit over $27 million of total group rooms revenue in the U.S. in the fourth quarter for system-wide hotels in the Americas. That represented about 13% of our total rooms revenue for the period. By the way, group globally was about 15% of our total revenues. Over the course of 2020, we realized total group revenue of about $340 million in our managed hotels in the Americas – I am just using this as a proxy, but this is our largest market, of which 87% was in the first quarter. The last three quarters saw only $44 million in total realized group room revenue. It sequentially improved over the course of the year. And so in the fourth quarter, about half of the $44 million that was realized over the last three quarters was realized in that fourth quarter. Now from the beginning of the fourth quarter through January, we booked $170 million roughly in pure new group business for all future months, and that excluded any rebooking activity. And that represents a 20% acceleration over Q3 in pure new group bookings. We are, for the first time since COVID-19 began, seeing association in corporate activity pick up for 2022 and beyond. And we have early signs that we will actually host corporate meetings as early as the second quarter of 2021. Now in addition to these new bookings, we have also rebooked approximately $300 million of business or about 28% of our canceled group revenue from March of 2020 through December of 2020. As we head into 2021, our expectation is that we will have sequential improvement in Q1 and Q2 from the realized group revenues in Q4 of 2020 with much more significant increases in Q3 and Q4, assuming that we stay on path with respect to vaccination and the increased use of rapid COVID tests over the course of the year. In January, we saw cancellations down 25% from the December levels as Q1 group business is mostly comprised of sports events that are operating in a bubble and also some sizable U.S. government business, including some essential healthcare workers, Armed Services business and National Guard business concentrated in several hotel takeovers. January through the first week of February saw lead generation rise to levels we have not seen since early 2020, with January’s lead volumes at a 50% improvement over December. And of that increased activity, 60% relates to 2021 arrivals, with a majority of that hitting in the second half of 2021. Now this activity is concentrated in our resorts and also importantly, in our primary convention hotels. In terms of pace, we reported on our last call that pace into 2021 was dropping, and we expected it to go lower as we expected additional cancellations of first half bookings, and that’s exactly what’s occurred as we’ve entered 2021. Pace is now off 60% as compared to last year, but it’s very much a tale of two halves. Pace in the first half of 2021 is down over 80%, while pace for the second half of 2021 is down just over 30%. Pace into 2022, where we have a bit over 40% of our total revenue booked at this time, is down roughly 10%. So as we look at that profile, I have to tell you that we have previously been saying that the sequence would be leisure transient, followed by business transient, followed by group and I think that the potential upside surprise in that progression is that we might see group come back in a more purposeful way, in a more significant way. I would also just say, and I’ll cover one dimension of the – what have we learned in relation to what we’re doing with respect to hybrid meetings. I’m not going to go into great detail about that. But I’d like Joan to comment on what we’re seeing in China and what we’ve learned through our experience there. So some of these early group bookings that I’m talking about that we’re starting to see as potential as early as Q2 of this year business are – I would describe them as materially different in form and format to anything that we have hosted in the past. And while many people in the industry have launched so-called hybrid-meeting solutions, we went back to the drawing board and started from scratch and recognized that cobbling together pre existing AV capabilities and having a digital leg to a meeting isn’t really satisfying the core needs of our biggest customers. So we started from scratch to design a very different approach to hybrid meetings. And I will just summarize that by saying that there is an essential human connection component of how companies are thinking about getting back together and what the reason depth or what the reasoning is that they want to get back together. And we’re figuring out ways to actually make that come to life, both on property and in relation to the digital participants. We have a live design effort under way in partnership with one of our big pharma companies that will span 11 different hotels in 11 different markets in the United States with close to 1,000 total in-person participants spread out in a socially distanced manner across hotels, but then also a digital leg to that business. And it’s really creating an engaging and meaningful experience for those who are joining digitally that is the new chapter for us moving forward. So that’s about all I will say about it because you can imagine that we’re working hard on launching something that we think is going to be truly differentiated. But let me turn it to Joan to comment on what we’ve learned out of China.

[Joan Bottarini:]

Sure. I mentioned in my prepared remarks that China was a top area of strength for us throughout the year, but in Q4 as well. And that’s across all segments of the business. We had – led by leisure, but also strength in business transient and group as well in China in the fourth quarter of 2020. We have – as you all know, there has been some recent localized lockdowns there starting in January. And we went back to look at what we experienced in 2020. And after the localized lockdowns were put in place, we found that demand recovered in about 30 to 45 days. And as we think about the current lockdown and the Chinese New Year and some other measures that China has put in place, we think it will be just a little bit extended, maybe 60 days into mid-March. But after those lockdowns were released, there was a return to the demand profile that we saw pre-lockdown. So we’re confident that we’ll have that same experience as soon as the lockdown is released. And just to give you a little bit more color, the occupancy levels that we saw in Q4 for Greater China, were approaching 60%. If you exclude Hong Kong, Macau and Taiwan, the occupancy levels were closer to 70%. And in January, we saw levels of about 40% across the region. So while there has been some depression, it’s still healthy comparatively at 40% during a lockdown situation.

[Mark Hoplamazian:]

And the kind of group business that we saw in China over the course of 2020 was what you would have seen pre-COVID

[Stephen Grambling:]

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

[Mark Hoplamazian:]

Yes. Let’s hope.

[Operator:]

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

[Smedes Rose:]

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

[Joan Bottarini:]

Yes. Thanks, Smedes. We – it is included in our cash utilization. And as I said in my prepared remarks, we have managed these revenues and cost to breakeven over time. And the experience prior to this year has always been at a breakeven, and we expect them to break even in the future, beginning with 2021. And just some color of why we expect that is because we – in 2021, we expect the RevPAR improvement, as we’ve just described over the second half of the year. So that contributes to greater levels of revenue. We’re also adding new hotels, which also contributes to greater levels of revenue. And we do have – and it is our expectation that we’ll be able to offset these costs over time without recording another charge to EBITDA as we did in 2020. Just – I just want to mention too that our decision here to preserve these services in 2020 really positions us well into the future to invest in the recovery together with our owners and realize the value that we believe these systems services provide. So hopefully, that helps give you more color.

[Smedes Rose:]

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

[Mark Hoplamazian:]

Within the U.S., yes, I would say that there has been some elevated focus on destination resorts as venues, whereas some of the groups that we’re talking to about their gatherings might have maybe initially focused on urban destinations. I think part of that has to do with the desire that they have got to actually get their own participants into a beautiful setting and give them a break from the monotony of the COVID lockdown. But for the bigger meetings, I am seeing a significant increase in incidence of doing multi-market and multi-location within a market coordinated meetings. And that means that, for example, a piece of a meeting might be synchronous programming and other portions of the meeting may be asynchronous. That also assists in finding time periods over the course of the day where people on the West Coast and people on the East Coast can be experiencing the same programming. And then you cover other elements in the early morning in the East Coast, where people are not up on the West Coast. And the late afternoon on the West Coast where people have already gone to dinner on the East Coast. So I’m finding that there is a lot more flexibility in how we can stitch together meaningful in-person and also hybrid meetings. And I think for those, it’s going to be much more widespread and with no appreciable geographic bias.

[Smedes Rose:]

Okay. Thank you for sharing.

[Mark Hoplamazian:]

Sure.

[Operator:]

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

[Dori Kesten:]

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

[Mark Hoplamazian:]

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

[Dori Kesten:]

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

[Mark Hoplamazian:]

Okay. Thanks. Look, I guess what I would tell you is that we have been very measured about our approach to engaging with party – third parties about selling hotels over the past two quarters because underlying our approach is a belief that asset prices are going to improve over the course of this year. And I have already seen firming of the market. I think the – some of the trades that occurred in the second and third quarter of last year that were reported to be somewhere between 20% and 30%, say, below pre-COVID levels, I think those kinds of discounts are quickly evaporating. And I think you’re going to see more trades that are approaching pre-COVID level. Now it’s going to depend a lot on the type of hotel and so forth. So in terms of – as I think about rank ordering the kinds of assets that are going to garner the most interest, they would be destination resorts that have significant drive to population base, of which we own a number. So I think that’s one dimension of it. We have some urban hotels that are clearly lagging in the total recovery. Having said that, those hotels are in the main very good assets and they are extremely well located. So we still have confidence that we will see that. We will see full value realized for them when we choose to sell them. We may lag selling some of those hotels until the buyer community has a better ability to assess the profile and pace of recovery. And frankly, if some of the early signs of life in the group side actually pan out over the course of this year, that might be sooner than we otherwise might have thought. There has also been a recent increase in activity and interest in urban and, I would say, uniquely – unique market kind of select service hotels. Most of our exposure to that asset class is through JVs that we have. We don’t wholly own any select service hotels. So the number may be a little bit more than a handful of hotels that we do own in the select service category or with partners. But I’ve been discussing this with our partners, even just this past week. And the level of inbound inquiry has gone up a lot. So that’s – I think how I would see the market evolving. We are paying attention also to the portfolio because, of course, we have a number of either trophy or very high-value assets, which are relatively easy to sell at any point in time, but we want to maximize what we get out of it. And we’re paying a lot – very close attention to the parties with in the transact so that we can maybe grow with them in the future as well as realize a great price. In terms of our fourth quarter activity, we did sell the Hyatt Regency in Baku. It was a small sale of $11 million, about 10x 2020 earnings. It was really important in our minds to release capital from a market that’s been through extreme volatility since the precipitous decline in the oil and gas sector there. And we will actually record a loss on sale of about $30 million, but 80% of that number is the cumulative negative currency translation over time. We’ve had that hotel in our portfolio for probably over 20 years. We also sold Exhale which is not a hotel property and wouldn’t count against our commitment to sell down real estate. It’s going to remain affiliated with the World of Hyatt and now part of a larger group. It doesn’t have any impact whatsoever on our commitment to well-being. It does reflect a concern, I would say, that we had and we felt compelled to make a decision given the pace and shape of recovery for studio-based businesses in fitness and in spa, has been even harder hit than hotels. So overall, it’s an immaterial deal. I think we will recognize a $10 million or $11 million loss on sale, but we thought that it was important to remain focused on the things that are going to have a bigger impact for us going forward. So that’s my plan update on sort of the transactions side.

[Dori Kesten:]

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

[Mark Hoplamazian:]

I think what we’re focused on right now is comprehensively understanding the needs of our customers and being there to extensively serve those needs. And I would think of the profitability that we expect to realize from this as the result of that focus as opposed to trying to design something that – where the object of the design process is really how do we maximize the money. We feel that because so many customers have come toward us to co-create. So we are co-designing this with several of our largest customers. And given the well-being components that we are able to bring to bear out of our own portfolio, mostly from Miraval, we think that we do have a lot of unique value to add. And that’s really where we think they will find lots of value. So that’s the way we’re thinking about it. I would just point out one other thing and that is, as we more deeply immersed ourselves in speaking to these large corporate customers. We’ve also learned one other interesting thing. And that is they do not view virtual meetings or even hybrid meetings as necessarily less expensive to hold than the in-person meetings, and there are some trade-offs there. Yes, you avoid travel, that’s probably air travel, which is one of the key considerations. But between the extra AV staffs that they have had to put on, plus the – what I would describe as the help desk issues, which, by the way, I’m sure everyone on this phone call has already experienced in their own lives, it’s actually an additional increment of cost for them to hold these hybrid meetings and keep it – or digital meetings and have them be seamless. So we’ve been admonished for thinking – for approaching this with a presumption that, of course, there is going to be a negative bias toward in-person meetings because they have reminded us that their staffing up has been significant in actually holding those kinds of meetings over the course of 2020.

[Dori Kesten:]

Okay, understood. Thank you.

[Operator:]

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

[Chad Beynon:]

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

[Mark Hoplamazian:]

Yes. First, I would say that there are other areas. They are in areas like food and beverage. The clustering activities that I mentioned earlier, I think, apply across many different hotels. The other point that I want to make to you is this, we have fundamentally shifted our mindset in terms of how we operate the company. And what I mean by that is that, historically, we have had at the hotel level and at the corporate level, a much more function-driven organization structure. As we went into 2020, and we realized that we had to throw all of our preconceived notions out the window, including all of our pricing models, we were coming together in a hyper cross-functional way and operating more like you would see an agile software development activity occur. And we’ve applied that now. So we’ve applied it in some really important areas. We revamped and restructured our – how we actually engage, provide and receive reimbursement and compensation from our owners with respect to system services. That’s a mega – if you talk to any hotel brand company and you start talking about revamping how chain services operate, it’s like a third rail. And yet we were able to accomplish a very significant revamp in the space of about 11 or 12 weeks and implement it all within the course of the year last year. We’ve done the same with respect to an owner platform that we’re standing up this year to provide much more flexibility and customization ability for our owners in terms of gleaning information out of us that will help them understand and assess their – the value that we’re providing to them. And we’ve got a number of other initiatives under way, including how we’re going to enhance our approach to franchising in the future. All of these initiatives, they are not projects because they will live on forever all of those initiatives are being done in a fundamentally different way. We are able to act faster and in a more agile way, and that’s both at the hotel level and at the corporate level. So if there is one message I’d like you to take away from this is, yes, we have plenty of points on the board with respect to actual results that we’ve driven over the course of the year, but we’ve discovered necessity is the mother of invention. We’ve discovered a way to end up with better outcomes on a faster clock speed and be able to deploy quickly. And I think that’s the gift that we’ll keep on giving as we go through this recovery.

[Chad Beynon:]

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

[Mark Hoplamazian:]

Yes. I think it’s an important topic. So thanks for asking. And I think it’s critical that I provide – I unpack this for you because the anatomy of our growth is important to understand. So let me start with 2020 so you can understand what the baseline is. So in 2020, we had gross rooms growth of 6.8%. We had terminations and attrition that represented a drag of about 1.4%, and that yielded a net rooms growth of 5.2%, which we already reported. But recall, that about half of the 140 basis points relating to terminations came from a single hotel called the Ocean Resort in Atlantic City, which came out of the system early in 2020. It was a very large 1,400-room property that represented a very, very small fee base for Hyatt because of the nature of the casino room block arrangement at the hotel. When you look at attrition and terminations in general, I will come back to 2021 in a second. We have, for many years, had attrition or terminations that were somewhere between 0.4% and 1% of total rooms. Now the year following our acquisition of Two Roads Hospitality was a bit higher than this, which we expected given the attrition that we forecasted after our acquisition. So over time, we would estimate that our termination rate – excuse me is something in the range of maybe 60 or 65 basis points per annum on average. For 2020, that was 1.4%, but again, half of that related to one hotel. And so we’re back down to maybe something in the 70 basis point range in 2020. So now let me make a quick comment about development pace as we head into ‘21 and then talk about ‘21. So we had an extremely strong fourth quarter, approximately 600 – sorry, 6,000 rooms opened, and we signed 9,900 rooms in the quarter. Now I want to quickly note that not all of those rooms are reported in our pipeline data. Not all of the signed rooms are because we only move signed deals into our pipeline when we deem them financed. So in total, for 2020, we have about 2,000 rooms that are signed, but not included in the pipeline because we’re continuing to qualify the financing for those deals. So in terms of the total math for 2020, we opened 15,000 rooms. We realized the decline of about 3,000 rooms, again half of that being the Ocean Resort. And we signed 23,000 rooms in the aggregate, again not all of which are reported in our pipeline, as I just described. Now let me talk about 2021. We estimate gross rooms growth of close to 8% in 2021 with over 100 hotels estimated to open in the year, and we expect to see new openings records in every region around the world. We have very conservatively estimated terminations and attrition at over 280 basis points. And if you subtract that from the close to 8% gross rooms growth, that gets you to around a 5% net rooms growth level. Now with respect to the terminations, we think it’s a very conservative estimate for what we are likely to see this year. However, it’s too early in the year to start to narrow that down and really refine that further. With respect to current activity, I would just make two points. A significant portion of the signings headwinds that we’ve had this past year are in select service hotels in the United States. So over 75% of our signings headwinds in the last year were in the select service segment in the Americas, and 50% of the year-over-year decline in signings in total, were attributed to select service hotels in the Americas. As for the rest of the world, we see continued momentum in new development activity. And as an example, ASPAC, our Asia-Pacific region expanded their pipeline after opening 5,600 rooms over the course of 2020. So we see significant activity there. And the final point I’ll make is conversions. We had a very successful year in conversions. I want to say, 20% of our net rooms growth was from conversions in 2020, and we would expect something in that same range in 2021. So I think that we have got a very good handle on how this is evolving. The two things that I would mention, one potential risk that I think has widely been discussed, which is the portfolio of 22 hotels we have with SVC, which is about 2,700 rooms or thereabouts. We remain in discussions with them and are hopeful that we will find a path forward with them. That’s a risk with respect to attrition, would be fully covered and included in our estimate for attrition over the course of the year. And the second thing I would say is that based on our conversations with developers, we’re really clear about the financing gaps that people are seeing, given where the banks are in funding new development in the United States. And so we are actively working on ways in which we can actually support our developers to get back and moving. Now we think that’s a good bet because new starts have declined so dramatically that we will have a lag in total supply growth in the industry, which is precisely the time that you want to be opening new hotels as that starts to take hold. And in our industry, if you studied it in history, we overbuild when things are great and we underbuild when things are bad. And it should be exactly the opposite. So I feel like with some creativity and with the proximity that we have with our development community, we can make a big difference and a differentiated difference in getting back to accelerating our select service pipeline in the U.S.

[Chad Beynon:]

That’s great. Really appreciate the detail. Thank you.

[Brad O’Bryan:]

Carol, this is Brad. We can take one more question.

[Operator:]

Okay. Thank you so much. And that question comes from the line of David Katz with Jefferies.

[David Katz:]

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

[Mark Hoplamazian:]

No. Well, thanks for that, David. I probably was too longwinded and we probably went ahead of time.

[Brad O’Bryan:]

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

[Mark Hoplamazian:]

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

[David Katz:]

Thank you so much.

[Operator:]

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