Hyatt Hotels Corp Q2 FY2020 Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the Hyatt Hotel Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker today, Brad O’Bryan. Thank you. Please go ahead. Thank you, Stephanie. Good morning, everyone, and thank you for joining us for Hyatt’s second quarter 2020 earnings conference call. Joining me on today’s call are Mark Hoplamazian, Hyatt’s President and Chief Executive Officer; and Joan Bottarini, Hyatt’s Chief Financial Officer. Before we get started, I’d 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 everyone and welcome to Hyatt's second quarter 2020 earnings call. To begin, I hope that everyone joining us this morning is healthy and safe, and I hope the same is true for your family and your loved ones. Before we highlight some important information regarding our business results, I want to take a few minutes to reflect on the past several months and the challenges faced by our industry. The Hyatt family has risen to the occasion and we are using the unique opportunities presented by this environment to challenge traditional assumptions, engage deeply with stakeholders and reimagine our business; all while continuing to focus on advancing our purpose to care for people so they can be their best. During this time, we've seen record levels of unemployment, the permanent closure of many small businesses and intolerable examples of racial injustice in our communities. It is precisely in these challenging times when our purpose matters the most and guides our action to support the rebuilding of our economy and our industry. This begins with creating a safe and inclusive environment for our colleagues and our guests throughout the world. We don't live out our purpose only when it's easy or convenient. It is fundamental to who we are, especially during these highly disrupted times. We continue to engage in our communities through direct support of organizations that focus on creating work opportunities for youth concentrated in underserved and underprivileged communities, many of which are predominantly Black and Latin-X communities in the U.S. In addition to these efforts, we are caring for our colleagues who are being affected financially by the pandemic. We established the Hyatt CARE fund specifically to provide financial assistance for colleagues suffering financial hardship as a result of COVID-19. I am pleased to report that the CARE fund has received approximately $9 million in donations to date and has already dispersed in excess of $5 million to over 12,000 colleagues around the world over the past several months, with many additional applications in process. The CARE fund will continue to help members of the Hyatt family who most need our support at this time, and I couldn't be more proud of this great work. The mutual support across the Hyatt family is palpable and inspiring. It defines who we are. While we are obviously managing through many challenges, we remain undeterred. We are committed to reimagining our business and resolved to emerge from this pandemic as a stronger and leaner business with stronger personal ties to our colleagues, guests, customers, and hotel owners. Working together with our owners, our colleagues are reimagining both the guest experience and the manner in which we operate hotels to optimize results, even at significantly reduced levels of occupancy. We are also supporting our guests as they return to our hotels by providing a safe and welcoming environment, and we've taken extra steps to care for our World of Hyatt members through a variety of benefits allowing them to maintain their status and enjoy additional benefits as they get back to traveling. This morning, I will review the type of demand we are seeing around the world and discuss how we are responding by reimagining operations and engaging with key stakeholders. In addition, I will provide a perspective on our future growth and our growth initiatives. When we last spoke to you during our first quarter call, we noted that the second quarter would bring the lowest demand levels the industry has ever seen and that we expected that the second quarter would be the low point of demand associated with this pandemic. We had closed over a third of our hotels in April and taken a number of important steps to weather the storm, including securing additional liquidity and reducing costs by way of furloughs, pay reductions, and elimination of non-essential spending. In May, we took additional painful steps to reduce the size of our workforce. During the month of April, we reached our peak of hotel closures at approximately 35% of our hotels globally. We are taking a deep analytical approach to identify those factors that support reopening in each market at each hotel. We have applied financial modeling including TSA and airline data, search and mobility data, and hotel bookings data to determine when it becomes desirable to reopen a hotel. Based on this approach, we’ve reopened many hotels over the past few months with 80% of our hotels open at the end of June and approximately 87% at the end of July. We plan to reopen most of the remaining hotels within the next couple of months. We have seen encouraging signs of strengthening travel demand in China and South Korea, in particular. Joan will share some occupancy numbers for China shortly, but what I am most encouraged by is the significant increase in RevPAR index we've seen through this recovery in China. While we've consistently delivered strong results in the past, our RevPAR index in the second quarter for full-service hotels in Greater China has reached levels about 15 points higher than 2019, indicating that we are significantly outperforming our competition through the early stages of this recovery. This is a direct result of the proactive ingenuity of the teams in our hotels. It is also a strong reflection of the strength of our brands in China and the high degree of trust travelers have in our brands during these uncertain times. Outside of China and South Korea, we are seeing positive increases in demand for certain markets around the world but at a slower rate of growth. Most of this business is being driven by leisure demand. Leisure demand was the principal driver of now 13 weeks of increases in occupancy and net bookings across the globe. However, the rate of growth and demand moderated in the middle of July following the July 4th holiday due to the impact of rising case counts in certain areas and many cross-border travel restrictions that remain in place across the world. We have seen increased momentum in the latter half of July. However, until meaningful and consistent progress is made towards slowing the spread of the virus, international travel in particular will continue to be negatively impacted. In addition, the booking window has shortened substantially. In the U.S., for example, over 65% of our full-service bookings and over 75% of our select service bookings are being made only four days ahead of the date of stay. This is the shortest transient booking window we have seen. With respect to group business in North America, we continue to experience near-term group cancellations and expect this to continue over the remainder of this year. All this makes it challenging to forecast results or plan for demand levels, and we are ready for this challenge. Our response to this has been to compress our decision-making on promotional activity and to pivot our actions as appropriate in real time. We've significantly increased the speed of response in local markets around the world, and this increased agility is serving us very well as we discover new pockets of demand and new ways of going to market. We are reimagining the guest experience in several ways that I will describe, and Joan will later explain how we are reimagining our hotel operating models to optimize financial results. We've been proactive in connecting with and listening to our guests including, importantly, our World of Hyatt members and our corporate and association customers to understand and respond to their needs in this new environment. Again, because these connections were a natural extension of our purpose of care, and because of the importance we had consistently placed on engagement, we moved quickly and effectively in this direction. The need that is first and foremost is safety and security. We reviewed our global care and cleanliness commitment during our first quarter call, and I am happy to report that as of the end of June, we had trained hygiene and well-being leaders in each of our hotels around the world. We've also recently announced mask requirements for all guests and visitors in our U.S. and Canadian hotels as a meaningful step to enhance the safety of our guests and colleagues. Beyond our global care and cleanliness commitment, we are reimagining the hotel experience to help guests rediscover their love of travel with a focus on safety first and well-being always. With an increased interest in private experiences, we're using spaces in new ways; for example, with private rooftop yoga, in-suite dining, or picnic basket dinners on the lawn with live music. We also have developed new in-room experiences such as spa kits and mixology kits for guests to create their own cocktails. Importantly, we continue to be dedicated to holistic well-being, which is more important than ever these days, and we've just opened our third Miraval resort, the Miraval Berkshires in Lenox, Massachusetts. Alongside these in-stay innovations, we're working hard to allow our guests to control their experience by completing the rollout of our enhanced digital engagement options, including digital check-in, keyless entry, and housekeeping preferences. These capabilities are rolling out in the next few months for most properties and by the end of the year for all properties. Mobile food and beverage ordering will also be available at all participating hotels in the coming months. In addition, another area of focus is the meetings and events experience. While demand for large meetings is limited, we have smaller group events occurring and have been working with meeting planners on new designs for events. In addition to standard safety protocols and unique food and beverage options, we are piloting and testing hybrid meeting formats which sometimes involve the use of multiple hotel locations to accommodate distancing requirements and travel limitations, and the use of technology to seamlessly combine virtual and live experiences. All these efforts are designed to be responsive to consumer and meeting planner sentiment and ultimately drive business back into our hotels. Many of these modifications in the guest experience will survive beyond this pandemic, and our engagement with our guests will continue to serve as a compass to guide how these experiences evolve over time. Now let me turn to addressing future growth. Even as we continuously adapt our business to current circumstances, we remain focused on long-term growth. We delivered second quarter net rooms growth of 5.8% despite the toughest business conditions the industry has ever faced. The disruption that has resulted from this pandemic has caused some construction delays for projects underway which is pushing certain opening dates back. We do expect these delays and some isolated terminations to negatively impact what would otherwise have been another very strong year of net rooms growth. Helping to offset some of that pressure, however, will be additional conversion opportunities that we're pursuing; some of which we expect to realize before the end of the year. As demonstrated last year, conversions are becoming a larger contributor to our growth profile and we expect that to continue. As evidence of our strong track record of driving growth, I would note that over the past five years, our net rooms have grown by over 40%, and our pipeline has almost doubled. We believe our robust pipeline positions us well to support continued growth over time. We continue to make solid progress on full-service development around the world with particular strength in our Asia-Pacific segment. Select service production in the U.S. has slowed due primarily to constraints on financing, which we expect to impact our pipeline growth for these brands in the near term. Longer term, however, we expect select service production to recover as there are significant opportunities for global growth of our select service brands supported by the performance of these brands and given our relatively modest market penetration across the globe. I would also add that we have seen some slowing within our pipeline of hotels that are advancing to the design and construction phase. While we do not expect this impact to be material, we are undertaking an in-depth review of these projects and will provide updates as appropriate over the coming quarters. Finally, I'd like to highlight some of our recent announcements under our Thompson and Alila brands which demonstrate the enhancement to our growth that we expected as a result of our acquisition of Two Roads hospitality less than two years ago. You may recall me discussing the brand synergies with the Two Roads brands being more focused on lifestyle and resort hotels, important and strategic areas of growth for us. Earlier in July, we announced two new Thompson properties: Thompson Savannah and Thompson Buckhead, both Georgia hotels that we expect to open in 2021. These two properties join existing Thompson properties and an additional seven under development across the U.S. and Mexico. Given the unique brand ethos coupled with a proven track record of performance, we've seen significant interest from third-party developers. Also in early July, we announced plans for the first new build Alila resort in the Americas located in Encinitas, California and scheduled to open by early 2021. This luxury hotel situated along coastal bliss and overlooking Grandview and South Ponto beaches in Encinitas will join another iconic resort, the Alila Ventana up the coast in Big Sur, California. The Thompson and Alila brands, along with the Joie de Vivre brand, which has been a successful conversion brand for us, have proven in just a short period of time to be an enhancement to our strong suite of brands that we expect will continue to drive growth for us over the long term. I will conclude my prepared remarks this morning by saying that the second quarter was challenging but in line with what we expected. We do believe the worst is behind us and we're seeing positive signs developing around the world with some clear pockets of strength. The recovery, especially as it relates to business travel here in the U.S., will continue to be challenging, but we are confident that pent-up demand for travel will lead to meaningful recovery as COVID-19 cases come under control and ultimately when effective treatments and/or vaccines are widely available. China serves as a great example that travel recovery is possible even without pharmaceutical treatments or a vaccine as long as proper, well-coordinated actions are taken to significantly reduce the spread of the virus. In the near term, however, the time frame over which demand recovers especially in the U.S. is less important than the manner in which we’ve prepared to continuously adapt to whatever conditions we face. Through the strength of our hotel leadership teams and the agility of our business leaders, we've quickly adapted and capitalized on opportunities to reimagine the business. We are proactively reimagining both the guest experience and the way we operate hotels efficiently and effectively, and we are confident these actions combined with the strength of our balance sheet, the enduring value of our brands and our continued focus on growth will not only allow us to navigate the recovery but emerge from this challenging period in a stronger position with enhanced profitability. I will now turn it over to Joan to provide additional detail on our operating results.

Thank you Mark and good morning everyone. As Mark just mentioned, we entered the second quarter anticipating the low levels of demand we experienced. I want to thank our teams who met the varied challenges proactively with ingenuity and with resolve. Our demand levels gained positive momentum from May to July and our liquidity position is stronger than we previously anticipated. Late yesterday, we reported a second quarter net loss attributable to Hyatt of $236 million and a diluted loss per share of $2.33. Adjusted EBITDA for the quarter was negative $117 million and a reported system-wide RevPAR decline of approximately 89% in constant dollars. Our reported system-wide RevPAR declines are impacted by both the inclusion of closed hotels in the calculation and by our chain scale composition, which includes significant exposure to upper upscale and luxury properties and to the top 25 markets in the U.S. that have been weaker than other market tracks over the past several months. I will now provide a few additional details on our operating results for the quarter and into July. Our reported results by definition include all comparable hotels and therefore those hotels that suspended operation during the period skew the RevPAR results, making comparability to statistics reported for the industry difficult and as a result the information I will share with you now will be based on only open hotels so that you can get a better picture of performance for those hotels actually in operation for the full month reported. We've also posted a supplement containing RevPAR information for open hotels on our investor relations website. I will just touch on a couple of highlights starting with the area we are seeing the greatest strengths. Greater China full-service open hotel occupancy levels had already begun to rise off their lows during the first quarter to about 22% in April and have since climbed to approximately 55% in July based on preliminary estimates. Excluding Hong Kong, Macau, and Taiwan where travel restrictions significantly depress demand in those markets, Greater China full-service open hotel occupancy rose from 25% in April to a preliminary estimate of approximately 64% in July, demonstrating the strength of domestic travel demand led by transient leisure. We have also seen strengthening business transient demand during the quarter now amounting to more than a quarter of total demand. Occupancy levels for open full service and select service hotels in the Americas range from a low of approximately 6% and 15%, respectively, in April to approximately 21% and 43% for the month of July based on our preliminary estimates. Our EMEA Southwest Asia segment occupancy levels for open full-service hotels were 7% in April and grew to a preliminary estimate of approximately 25% in July. While the numbers demonstrate that we are starting to see varying signs of recovery, occupancy levels are nonetheless still at historically low levels. As a result, I’d like to spend a little time reviewing how we are successfully reimagining our hotel operating models to optimize financial results with lower demand levels. Before I review the modifications we have made to hotel operations, I did want to briefly review the action we've taken with respect to overhead costs and services provided on behalf of our hotels. During our first quarter call, we discussed the various ways in which we were both reducing overhead costs and managing cash flow and liquidity. Subsequent to that call, and as Mark briefly mentioned earlier, we announced reductions in our workforce of approximately 1,300 positions at corporate, regional and shared service center locations around the world. This was an incredibly painful decision but one we believe was appropriate to adjust our cost structure given the significant reduction in revenues combined with expectations of an extended recovery period. Cost savings associated with those reductions compared to our original plan translate into about a 35% reduction in our monthly SG&A and approximately 40% reduction in our monthly costs for certain system-wide services that are reimbursed by our hotel owners. Shifting to hotel operations and opportunities beyond the reduction of reimbursed costs, this environment has inspired creativity combined with resolve to not just reimagine the colleague and guest experience but also to reimagine the manner in which we operate our hotels. The two most significant areas of opportunity include staffing and food and beverage offerings. On the staffing front, we found ways to accomplish more with less through carefully reduced staffing levels. Experienced staff are positioned to provide multiple services with fewer guests in the hotels. In certain cases, where we have multiple hotels in a given market, we've increased the use of clustering where we provide oversight with colleagues that are responsible for multiple hotels. On the food and beverage side, we've been thoughtful about how to service limited demand and cost-effectively, which typically includes the expansion of our very high-quality grab-and-go concept that we call the Market and where demand warrants it, limited to three meal options in selected outlets with the temporary suspension of other outlets. I will just share two examples of owned hotels and what we've accomplished through these steps. I will start with our 422-room Hyatt Regency Lake Tahoe, an owned property. This is a one-of-a-kind leisure-oriented property that effectively serves as a drive-to location for many in California and Nevada. In the month of June, this resort rented an occupancy of about 56%, which was strong for a larger full-service property in this environment but nonetheless down significantly from the 81% occupancy realized in June of last year. Despite the lower occupancy, the extraordinary efforts of the team on property to manage costs resulted in strong margins that were only about 500 to 600 basis points lower than achieved in June of 2019 at both the gross operating profit and EBITDA level. With rates slightly lower, increased productivity and a lower mix of F&B revenues helped achieve this excellent flow-through result. Another example I’d like to share with you is our 491-room Hyatt Regency Lost Pines Resort just outside of Austin, Texas, another owned hotel. This is another drive-to leisure resort that experienced increased demand in June, with just over 26% occupancy for the month compared to about 85% in June of last year. Despite the far lower occupancy, the team on property was again able to manage costs and still drive positive EBITDA for the month. With higher rates and improved productivity, this resort had an implied break-even occupancy for the month of less than 25%. These types of efforts are being applied across all of our hotels, and this approach has supported the reopening of hotels in a limited occupancy environment to mitigate some of the negative financial effects of hotel closures. We have effectively reduced the break-even occupancy level of our full-service hotels by at least five percentage points around the world and in some cases more. Our teams continue to be innovative and fiscally responsible in managing hotel operations in order to maximize financial results for both third-party owners and for our owned hotels. I’d now like to provide a brief update on liquidity. During our first quarter call, I discussed the steps we had taken to secure additional liquidity and indicated that based on our level of liquidity at the time, we could continue to operate at those significantly reduced revenue levels for greater than 30 months. During the second quarter, we utilized approximately $20 million less cash per month than the $90 million monthly burn rate we originally assumed, excluding severance payments and other one-time costs. We achieved this result due in large part to the reduction of expenses, which offset the impact of owner concessions, fewer working capital needs for third-party owners, and improved cash management at owned hotels. We've worked with third-party owners on financial concerns and have both reduced and deferred amounts owed for system services, and we will continue to monitor the circumstances closely as we move forward. As of June 30, our total liquidity inclusive of cash and equivalents combined with borrowing capacity was almost $3 billion, with the only near-term maturity of long-term debt being $250 million of senior notes due in the third quarter of 2021. We believe our existing liquidity, combined with lower actual cash usage demonstrated during the second quarter, supports our ability to operate at second quarter 2020 demand levels for an additional 36 months. We expect second quarter occupancy levels to be temporary and improve as travel restrictions are lifted and demand continues to increase and we therefore expect our monthly burn rate to continue to improve over the recovery period. I will conclude my prepared remarks by saying that while the second quarter was as expected, the most challenging quarter we've ever experienced as a business, we are beginning to see some early signs of improvement and remain optimistic about continued progression of demand in the months and quarters to come. We nonetheless are prepared for an uneven recovery and intend to continue to proactively reimagine our operating model to maximize results under varied demand levels. We believe these actions and the strength of our liquidity position will allow us to effectively navigate the recovery, optimize earnings, and support our growth strategy as demand improves over time.

Thank you. And we'll pause for a moment to compile the Q&A roster. Your first question comes from Stephen Grambling with Goldman Sachs. Please go ahead.

Hi, good afternoon. Thanks for taking the questions. Perhaps I missed this. So can you quantify the amount of support provided to owners in the form of deferred fees or other working capital benefits and how would you generally think about this cash outflow unfolding over the remainder of this year and also longer term?

Hi, Stephen. We have not disclosed the actual amount of concessions that we've provided. But we've been working with our owners and have provided concessions since April. And we've been able to effectively cut the costs that would offset those concessions that we've provided to our owners. So as we think about that going forward, we're going to stay very close to demand levels and the needs of our owners and continue to evaluate what concessions we may provide in the future. And those savings we've achieved even represent the majority of the improvement in the run rate, cash burn that we had previously projected. As Joan mentioned, we picked up $20 million of lower cash burn; in effect, the majority of that difference has to do with the fact that we’ve reduced those expenses associated with the concessions that we provided to owners.

Got it. That's helpful clarification. As an unrelated follow up, how are your corporate conversations going as you think about the path of recovery in business transient group and how might be experienced in China and foremost of that path within those segments?

Yes, it's a good question. And I think it's a relevant comparison because we have a lot more longitudinal data out of China to look at. The discussions with most of our key corporate customers have to do with how they are evolving their own return to office experience and also how they're meeting their business demands. The approaches are quite varied. But one thing that is true in many cases is that they're still in discovery mode to understand how many people are going to be coming back into offices in different places. Many people entered the summer expecting to be in a cadence of people returning to the office by the middle of the summer and many have deferred decisions until after Labor Day. With respect to China, the progression has been really great to see, very encouraging. We've seen a steady progression of occupancies in the market over the course of the last several months. And to the point where by the end of July, we were at occupancy levels equivalent to where we were in 2019, which is quite remarkable. Rates are beginning to catch up as occupancies have continued to expand. North China is lagging behind, as there was an outbreak in Beijing about five or six weeks ago, leading to a subsequent shutdown for several weeks. But we ended the month of July in Greater China with mid-50s occupancy; if we discount Hong Kong and Macau, which had travel restrictions, it was more like mid-60s occupancy for the rest of Greater China. You can't achieve those levels without middle-of-the-week business. So we are seeing the return of business transient, which represents more than a quarter of total demand. We also hosted product launches by key customers such as BMW and Volvo, indicating a return of group bookings. Overall, we’re encouraged across the board. Lastly, the transient activity we have seen, especially leisure transient activity in China, has provided valuable insights we are applying globally. Our increase in our RevPAR Index, which I cited in my comments, was driven by some extraordinary actions taken by our local teams, and deployment of a new go-to-market platform with WeChat, which made an enormous difference. I must acknowledge the ingenuity and innovation amongst our teams in China that allowed us to expand our share significantly.

Thanks so much. Apologies for the background noise.

Your next question comes from Jared Shojaian with Wolfe Research. Please go ahead.

Hi, good morning, everyone. Thanks for taking my question. Can you talk about what you're hearing from the development community for projects that are in the pipeline, but where construction has not yet begun? Because there's a widely held view that in the next year or so we could see a lot of hotels become available? Can you just help us understand from an owner’s perspective, the benefits of new build construction, given there may be some opportunities to acquire distressed real estate?

Sure. First and foremost, the answer to your question is highly dependent on where and what type of hotel you're talking about. There are many markets in which there's either new city center or new development underway where existing supply doesn't exist. It’s going to depend on the type of market and the economics right now. What we're seeing in the development pipeline evolution, especially on the select service side, is really a financing phenomenon. The banks are currently waiting to have better visibility on what the recovery profile will look like before they commit to new construction. This will have a short-term effect on new starts, particularly in the U.S. We’re tracking this carefully across the globe. Our outlook on our growth remains quite positive; we expect net rooms growth to be around 4% to 4.5% this year, as opposed to the original guidance of 6.5% to 7%. This doesn't include conversions we are currently working on, which could positively impact that number. The exact timing of when those deals appear in our pipeline or as open hotels is uncertain, but our most recent assessments are that we still have many discussions underway.

Thank you. That's very helpful. And Mark, you also talked about a slowing of demand in the middle of July, that going to pick up in the latter part of the month. And then you also said your booking window has shortened pretty significantly. So with that caveat, can you just talk about the trends toward the latter half of July into August? Have you seen based on what you have on the books right now in the early days of August? Have you seen continued improvement here in the early days of August? And are you assuming August looks kind of similar to the recent month-over-month sequential improvement that you'd been seeing throughout the second quarter?

So, Jared, I'll respond to that, and Mark can add any commentary. The moderating Mark referred to was in the growth rate. We saw an increase at the beginning of July, mainly due to the holiday in the U.S., but that growth rate moderated. However, we’ve seen some improving week-on-week demand into the latter half of July, and in fact, over the weekend we noted an uptick in early August as well. It’s been uneven; we’re tracking it closely, but we see continued progression. That comment related to the growth rate moderating because we did see a nice rise at the end of June leading into the July 4 holiday.

I would also say that the impacts with respect to growth rate were pronounced in markets that experienced surges in COVID-19 cases. That is quite clear; it’s expected. Other than Arizona, rates of progression are largely returning to normal, and we’re carefully monitoring that because it’s logical to expect that surges will have an immediate impact. The negative aspect is it's short-term, but the positive side is that there's no speculation involved.

Okay, thanks. Thank you very much.

Your next question comes from Smedes Rose with Citi. Please go ahead.

Hi, thank you. I wanted to ask you for more information about the operating model for owned hotels. You mentioned doing more with less in terms of staffing and some clustering. As demand continues to recover, do you expect to maintain a more efficient operating model? Also, do you have any idea of what the difference would be on the owned margin if you were to apply these cost savings to 2019?

Smedes, we went through a couple of examples in the prepared remarks of what we're seeing and how our teams at the property level are shifting their mindset and reimagining the way in which they apply themselves to retaining or driving as much hotel revenue as they can and retaining the flow through it each property. One of the examples was the Lake Tahoe case where we achieved breakeven occupancies well below what we had anticipated and disclosed in our Q1 call. I would say that we are extremely encouraged by the creativity displayed by our hotel operations teams and their ability to drive greater levels of flow-through at these low levels of demand. It's very early to tell how this will evolve, but I expect this mindset will continue, enabling us to expand margins at lower occupancy than we had previously thought on a breakeven basis.

Okay, thanks. Can you remind us what percentage of overall earnings China is currently contributing to the company?

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

Great. Okay, thank you.

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

Hi, good afternoon, everyone. I wanted to revisit a couple of areas that have already been discussed. First, regarding the relief and deferrals for franchisees, Joan, I know it may be challenging to quantify some of these figures, but could you provide any insight into the collection rate you're observing from franchisees, or what percentage of owners are currently making payments? Additionally, could you share the nature of those discussions? Are you feeling positively or negatively surprised by them? That would be a good starting point. Secondly, I’d like to ask a broader question about your current perception of the franchise and ownership community and their overall financial health.

Sure, Shaun. With respect to what we've seen in the quarter, the recovery has exceeded our expectations. The level is lower than we might have otherwise thought. We haven't disclosed any actual amounts of relief on the fee front for management and franchisees. We have provided some deferrals for hotels that requested relief, and these have been negotiated on a one-off basis. We will stay close to it and adapt as needed.

Yes, and I would say, having recently reviewed this, my recollection is that receivables with respect to hotel services are in good shape. We aren't seeing significant expansion of those receivables from owners. Overall, our owners are holding up; we have a couple of examples of hotels that are under financial stress, but these are concentrated in hotels with a capital structure that was already stressed before COVID. Those are the exceptions, as most owners are large and well-capitalized without excessive leverage. However, as time goes on, there’s a chance we will see more financial stress as initial waves of concessions from banks and forbearance agreements either lapse or extend. We are working hard to advocate for relief for owners with mortgages part of CMBS structures, as this poses a particular risk.

Thank you for the detail. And then maybe just as a quick follow up. I was interested in encouraged by the RPI comment as it relates to China. And I’m just curious, maybe too early to have this data, but do you have anything or any signs of how your RPI might be performing in the United States, whether it's by category or by something just to get a sense of I think the broad question we get from our investors, how your brand is going to hold up? Is there still a market share beneficiary relative to independence, that sort of thing, any signpost there?

It's really difficult to assess this right now; when I look at the number of hotels we had closed in the Americas over this period. At one point, we were at 60% for full-service hotels in April and May, which only started to come down in June. So it’s too early to confirm comparisons. However, our select service brands are performing well on an index basis. I don't have specific figures, but our select service hotels have tracked positively as we've seen occupancy rates recover.

Thank you.

Your next question comes from Thomas Allen with Morgan Stanley. Please go ahead.

Thank you. So just in terms of management fees, they are obviously the hardest to predict. So on the core, you reversed some of the fees you’re taking earlier in the year. But if current June through August trends continue to give us any sense of where those would check out the year?

Sure, Thomas, as a reminder, our fees in the U.S. are largely after hurdles that we must achieve, meaning after GOP flow-through positive is a necessary outcome. Internationally, the structure of those contracts leads to our incentive fees being earned on GOP dollars. In China, we are seeing, as of June, that over half of our hotels have a year-to-date positive result at the GOP line, meaning we will start to earn incentive fees there. As the recovery progresses, that international incentive fee growth will follow, while in the U.S. it may lag due to the structural reasons I described.

Okay, so if we take the first half of this year, it can improve from here as those international markets start to show some positive momentum?

That's correct. But I should clarify that there was a reversal in the second quarter of some incentive fees we previously recorded from the first quarter.

Perfect.

We expect to expand our pipeline based on ongoing discussions, and the hotel environment remains stable. We are confident in our long-term growth outlook based on our strong performance in Asia and new conversion opportunities emerging. Net rooms growth should reduce to 4-4.5% while remaining optimistic about our prospects in the second half of the year.

Your next question comes from David Katz with Jefferies. Please go ahead.

Thank you. And your last question comes from Kevin Kopelman with Cowen & Company. Please go ahead.

Thanks a lot. Just as a follow-up, could you expand on just given the business travel environment is dried up currently, what leverage you're able to pull and the things you're working on to drive more leisure travel demand to the extent that you can?

Yes, the answer in a nutshell is to go local, as local as possible. Our teams have demonstrated that understanding where pockets of demand exist has been key to generating revenue. A lot of demand is from people driving to our destinations as opposed to flying. Understanding how to source demand at a local level has been critical to our performance, which was evident in our results in China. Our resorts have performed well overall; however, Hawaii has been significantly impacted with a large portion of inventory out of the market. But other resorts benefiting from drive-in guests are performing exceptionally. So this has turned into a local focus, and having strong teams on the ground has proven essential. Our relationships with Travel Advisors, particularly for luxury resorts and properties have been fruitful. This traditional approach to hotel management has worked and remains our strategy until a broader base of demand returns. Thank you to everyone for taking the time to join us today. Take care and be safe. We look forward to speaking with you again soon.

Thank you. This concludes today's conference call. You may now disconnect.