Hyatt Hotels Corporation (H) Q2 2020 Results - Earnings Call

Hyatt Hotels Corporation (NYSE:H) Q2 2020 Earnings Conference Call August 4, 2020 11:30 AM ET

Company Participants

Brad O’Bryan - SVP

Mark Hoplamazian - President and CEO

Joan Bottarini - CFO

Conference Call Participants

Stephen Grambling - Goldman Sachs

Jared Shojaian - Wolfe Research

Smedes Rose - Citi

Shaun Kelley - Bank of America Merrill Lynch

Thomas Allen - Morgan Stanley

Kevin Kopelman - Cowen & Company

Operator

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. [Operator Instructions].

I would now like to hand the conference over to your speaker today, Brad O’Bryan. Thank you. Please go ahead.

Brad O’Bryan

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.

Mark Hoplamazian

Thank you, Brad. Good morning everyone and welcome to Hyatt's second quarter 2020 earnings call. To begin with I hope that everyone is joining us this morning is healthy and safe and I hope the same is true for your family and your loved ones.

Before we highlight some important information regarding our business results, I want to take a few minutes to reflect on the past several months and how we review the challenges across the world and those faced by our industry. The Hyatt family has risen to the occasion and we are using the unique opportunities presented by this environment to challenge traditional assumptions, engage deeply with stakeholders and reimagine our business; all while continuing to focus on advancing our purpose to care for people so they can be their best.

During this time we've seen record levels of unemployment, the permanent closure of many small businesses and intolerable examples of racial injustice in our communities. It is precisely in these challenging times when our purpose matters the most and guides our action to support the rebuilding of our economy and our industry. This begins with creating a safe and inclusive environment for our colleagues and our guests throughout the world. We don't live out our purpose only when it's easy or convenient. It is fundamental to who we are especially during these highly disrupted times.

We continue to engage in our communities through direct support of organizations that focus on creating work opportunities for opportunity youth who are concentrated in underserved and underprivileged communities and in the U.S. many of these communities are predominantly black and Latin-X communities. In addition to these efforts we are caring for our colleagues who are being affected financially by the pandemic. We established the high CARE fund specifically to provide financial assistance for colleagues who are suffering financial hardship as a result of COVID-19.

I am pleased to report that the CARE fund has taken an approximately $9 million in donations to-date and already dispersed in excess of $5 million to over 12,000 colleagues around the world over the past several months with many additional applications in process. The CARE fund will continue to help members of the Hyatt family who most need our support at this time and I couldn't be more proud of this great work.

The mutual support across the Hyatt family is palpable and inspiring. It defines who we are. While we are obviously managing through many challenges we remain undeterred. We are committed to reimagining our business and resolved to emerge from this pandemic as a stronger and leaner business with stronger personal ties to our colleagues, guests, customers and hotel owners.

Working together with our owners, our colleagues are reimagining both the guest experience and the manner in which we operate hotels to optimize results even at significantly reduced levels of occupancy. We are also supporting our guests as they've returned to our hotels by providing a safe and welcoming environment and we've taken extra steps to care for our world of Hyatt members through a variety of benefits allowing them to maintain their status and enjoy additional benefits as they get back to traveling.

This morning, I will review the type of demand we are seeing around the world and discuss how we are responding by reimagining operations and engaging with key stakeholders. In addition, I will provide 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 up for this challenge.

Our response to this has been to compress our decision making on promotional activity and to pivot our actions as appropriate in real time. We've significantly increased the speed of response in local markets around the world and this increased agility is serving us very well as we discover new pockets of demand and new ways of going to market.

We are reimagining the guest experience in a number of ways that I will describe and Joan will later explain how we are reimagining our hotel operating models to optimize financial results. We've been proactive in connecting with and listening to our guests including importantly our world of Hyatt members and our corporate and association customers to understand and respond to their needs in this new environment.

Again because these connections were a natural extension of our purpose of care and because of the importance we 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 an additional area of focus is the meetings and events experience. While demand for large meetings is limited we have smaller group events occurring and have been working with meeting planners on new designs for events.

In addition to standard safety protocols and unique food and beverage options we are piloting and testing hybrid meeting formats which sometimes involve the use of multiple hotel locations to accommodate distancing requirements and travel limitations and the use of technology to seamlessly combine virtual and live experiences. All these efforts are designed to be responsive to consumer and meeting planner sentiment and ultimately drive business back into our hotels. Many of these modifications in the guest experience will survive beyond this pandemic and our engagement with our guests will continue to serve as a compass to guide how these experiences evolve over time.

Now let me turn to addressing future growth. Even as we continuously adapt our business to current circumstances we remain focused on long-term growth. We delivered second quarter net rooms growth of 5.8% despite the toughest business conditions, the industry has ever faced. The disruption that has resulted from this pandemic has caused some construction delays for projects underway which is pushing certain opening dates back.

We do expect these delays and some isolated terminations to negatively impact what would otherwise have been another very strong year of net rooms growth. helping to offset some of that pressure however will be additional conversion opportunities that we're pursuing; some of which we expect to realize prior to the end of the year.

As demonstrated last year conversions are becoming a larger contributor to our growth profile and we expect that to continue. As evidence of our strong track record of driving growth I would note that over the past 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 non-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 in which we operate hotels efficiently and effectively and we are confident these actions combined with the strength of our balance sheet, the enduring value of our brands and our continued focus on growth will not only allow us to navigate the recovery but emerge from this challenging period in a stronger position with enhanced profitability.

I will now turn it over to Joan to provide additional detail on our operating results. Joan over to you.

Joan Bottarini

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 1300 positions at corporate, regional and shared service center locations around the world. This was an incredibly painful decision but one we believe was appropriate to adjust our cost structure given the significant reduction in revenues combined with expectations of an extended recovery period.

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

Shifting to hotel operations and opportunities beyond the reduction of reimbursed costs. This environment has inspired creativity combined with resolve to not just reimagine the colleague and guest experience but also reimagine the manner in which we operate our hotels. The 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-effective ways that typically includes expansion of our very high quality grab-and-go concept that we call the Market and where demand warrants it limited to a three meal options in selected outlets with temporary suspension of other outlets.

I will just share two examples of owned hotels and what we've been able to accomplish 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 which effectively serves as a drive to location for many in California and Nevada. In the month of June, this resort rented 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 growth 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 5 percentage points around the world and in some cases more. Our teams continue to be innovative and fiscally responsible in managing hotel operations in order to maximize financial results for both third-party owners and for our owned hotels.

I'd now like to provide a brief update on liquidity. During our first quarter call I discussed the steps we 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 equivalence combined with borrowing capacity was almost $3 billion with the only near-term maturity of long-term debt being $250 million of senior notes due in the third quarter of 2021. We believe our existing liquidity combined with lower actual cash usage demonstrated during the second quarter support our ability to operate 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 overtime.

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

Question-and-Answer Session

Operator

Thank you. [Operator Instructions]. 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.

Stephen Grambling

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?

A - Joan Bottarini

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 are -- 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.

Mark Hoplamazian

And those savings we've achieved even represent the majority of the improvement in the run rate, cash burn that we have previously projected, that we – as Joan mentioned that 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.

Stephen Grambling

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 transiting group and how might be experienced in China and foremost of that path within those segments?

Mark Hoplamazian

Yes, it's a good question. And I think it's a relevant comparison because we have a lot more longitudinal data out of China to look at. The discussions with most of our key corporate customers has to do with how they are evolving their own return to office experience and also how they're meeting the demands that they've got with respect to their business.

And I would say the approaches are quite varied. But one thing that is true in many cases is that they're still in discovery mode to understand how many people are going to be coming back into offices in different places. I would say that many people entered the summer expecting that by the middle of the summer, they would they would be in a cadence of people returning to office and I think many people would have deferred the decisions until after Labor Day.

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

Rates are beginning to catch up as occupancies have continued to expand. North China is lower and the reason is that Beijing had a -- an outbreak about five or six weeks ago. And there was a subsequent shutdown in Beijing for several weeks while the caseload came down.

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

And you can't get to those occupancy levels without having midweek business. So we're seeing now the return of business transient, which represented more than a quarter of that total demand. As we have seen the progression of our occupancies rise.

The last thing I will say is that in July, we also saw the return as improved business. We had -- we hosted product launches by some key customers of ours, like BMW and Volvo, and Gucci, who are launching and holding new product launches and gatherings in our hotels.

So we're also starting to see the return of group. So we're encouraged by this across the Board. The only other thing I would say is that the transient activity that we've seen, especially leisure transient activity in China, which -- these are lessons that we're applying everywhere else around the world. Our increase in our RevPAR Index, which I cited in my comments, was driven by some extraordinary actions taken by our local teams, and deployment of a new go-to-market platform with WeChat. And it's made an enormous difference. So I have to acknowledge the fact that it was a lot of ingenuity and innovation amongst our teams in China to allow us to expand share as much as we did.

Stephen Grambling

Thanks so much. Apologies for the background noise.

Mark Hoplamazian

No worries.

Operator

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

Jared Shojaian

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?

Mark Hoplamazian

Sure. First and foremost, this already, but it's very clear that the answer to your question is highly dependent on where and what type of hotel you're talking about. So there are many markets in which there's either new city center or new development underway where existing supply doesn't exist.

So I would say it's going to depend a lot on the type of market. And the economics right now, I think that what we're seeing in -- on the -- in the development pipeline evolution on the select server side, especially is really a financing phenomenon. And I think the banks are at this point waiting to have better visibility to what the profile of recovery is going to look like before they make commitments to new construction.

So, I think that that is a hindrance at the moment. And I think that that'll have a short-term effect on new starts. And we're tracking this carefully across the globe. And I would say the dynamics in the U.S. are probably the most pronounced when it comes to finance related construction start impact.

In terms of our own outlook on our own growth, we were still quite positive, we have an outlook, which suggests that our, that net room's growth could be more in the range of 4% to 4.5% this year, as opposed to the original guidance that we provided of 6.5% to 7%.

That does not include a number of conversions on which we're working right now. We have signed term sheets on a number of conversions that will impact that number, but we're not including those at this time. And at the same time that we do that we do expect to expand our pipeline over the course of this year. So we're seeing continued activity it’s at a lower level than we had previously thought. A lot of that impact in the net room’s growth this year has to do with rooms that are moved into 2021. So we would -- I would say it's probably in excess of 100 basis points of impact with respect to our growth rate and net room’s growth this year due to rooms moving into ‘21. So that's kind of a profile that we're looking at the moment.

Jared Shojaian

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 my guess 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?

Joan Bottarini

So, Jared, I'll respond to that. And Mark can add any commentary. The moderating that Mark referred to was in the growth rate. So we saw an increase in the beginning of July, and a lot of that was related to the holiday in the U.S. And then the growth rate started to moderate. But now we've seen some improving week-on-week demand into the latter half of July. And in fact, we of course, look at daily information, and we saw that over the weekend. We saw a nice uptick in July -- excuse me in August and the first weekend in August as well.

So it's been uneven, and we're tracking it very closely, but we do see continued progression. That comment was related to the growth rate moderating because we did see it actually rising pretty nicely to the end of end of June and into the July 4 holiday.

Mark Hoplamazian

I would just also say that the impacts with respect to growth rate was pronounced in the markets in which you had surges of COVID-19 cases. That's pretty obvious, right? That's something that you would otherwise have expected. I would say other than Arizona, those rates of progression have largely returned. And so we're tracking that carefully, because I do think that -- we should expect and I think it's logical to expect that that surges in caseloads will have an impact. And given the booking windows that we discussed earlier, the impact is instantaneous. So the bad news is it’s a short-term. The good news is, right away, it's -- there's no speculation.

Jared Shojaian

Okay, thanks. Thank you very much.

Operator

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

Smedes Rose

Hi, thank you. I wanted to ask you just a little bit more about the operating model for own hotels, you talked about doing more with less on the staffing side, and some clustering. As demand continues to come back, would you anticipate being able to maintain a more efficient operating model? And do you have a sense of maybe on -- if you applied these cost savings to 2019 kind of what the difference would be on the owned margin?

Joan Bottarini

Smedes, we went through a couple of examples in the prepared remarks, that -- of what we're seeing and how our teams at the property level are really shifting their mindset and reimagining the way in which they apply themselves to retaining or driving as much hotel revenue as they can and retaining the flow through it each property. So one of the examples was the loss times example where we've got breakeven occupancies well below, we had anticipated as a benchmark and had disclosed in our Q1 call. So I would say that we are extremely encouraged by the ways in which our hotel operations teams are thinking creatively and driving greater levels of flow through at these levels of demand.

It's very early to tell what the -- what our expectation is going into the future, but I have every expectation that we will -- this mindset will continue and that will continue to be able to expand margins at lower levels of occupancy than we previously thought on a breakeven basis.

Smedes Rose

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

Mark Hoplamazian

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

Smedes Rose

Great. Okay, thank you.

Operator

You next question comes --

Mark Hoplamazian

I'm sorry. So just excuse me for one second, just to correct that that's at a fee level not an earnings level. So you'd have to apply a margin to that, but at a management and franchisees level it's in the range of 10%. And we would estimate maybe somewhere in the range of 5% on an earnings basis.

Operator

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

Shaun Kelley

Hi, good afternoon, everybody. I just wanted to go back to -- I guess two areas you guys have already discussed. So first was on the kind of the franchisees relief and deferrals. Joan I know, it's probably a little hard to quantify some of these numbers, but could you just give us any sense either anything directionally on what type of collection rate you're seeing from franchisees, or what percentage of owners are paying at them at this moment and -- or just what's the -- maybe what's the tenor of those discussions? Are you surprised positively or negatively? That would be the start. And then the second would be maybe just a broader question of kind of how -- what is your perception at the moment of the broader franchise and ownership community and their broader financial health?

Joan Bottarini

Sure, Shaun. As -- with respect to what we've seen in the quarter is low it is -- has exceeded our expectations that it's been lower than what we might have otherwise thought. We haven't provided any relief on the fee front management and franchisees. We have provided some deferrals. And those deferrals have been for a handful of hotels that have requested the relief and so those have been negotiated at -- on a one-off basis. So that's kind of what we've seen in the quarter. And as we look going forward we're, we're prepared as we said for the even recovery and we're going to stay close to it and stay close to our owners to adapt to the changing environment.

Mark Hoplamazian

Yes, and I would say, I mean, having recently taken a look at this together, I think my recollection is that receivables with respect to hotel services are in good shape. We're not seeing significant expansion of those receivables that we have from ownership groups. With respect to owners, I think in general, I would say our owners are holding up, we have a couple of examples of hotels that are under particular stress, financial stress at this point, but they were -- they really are concentrated in hotels where they may have had a capital structure that left them in a more stressed situation even be -- even pre-COVID to begin with.

Those are the exceptions. But overall, I would say quite positive. In some -- in many of the markets outside the U.S., we have very large and well capitalized ownership groups without tremendous leverage in the system. So I feel quite good about that. I do think that as time goes on and as initial rounds or initial wave of concessions from banks and forbearance agreements either lapse or start to extend and lengthen. There's a chance that we will see more financial stress in the market. We – I’ve personally have been spending a lot of time with my friends at H&LA really helping to tell the story on Capitol Hill and at the Treasury Department to encourage them to take a hard look at how they can provide some relief for owners whose mortgages are part of CMBS structures.

I think that's a particular risk because the direct relief there is more difficult to achieve. If you've got a bank that holds your debt -- the debt on your hotel, you could actually have someone to talk to whereas special servicers really engage in one-off discussions very often.

So we've really pitched different ideas relating to the Mainstreet lending program, which has not really been productive to-date. And also how PPP loans might be able to be applied to help owners especially those with mortgages that are part of CMBS structures to get some relief. So we're working hard to do that because we have concerns that if you have a elongated period of time during which there's just a persistent volatility in demand some of the owners will likely have a real fiscal issues along the way.

Shaun Kelley

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?

Mark Hoplamazian

It's really difficult. I'm looking at the progression of the number of hotels that we've had closed in the Americas over this period of time. And we were in the 60s, in terms of the percentage of hotels, full service hotels closed in April in May, that just -- that only started to come down in June. So really difficult for us to say it's just too early to make any valid comparisons and look at concepts that makes sense in an SGR world.

With respect to select service, though, select service has -- our select service brands have been performing well on an index basis. I don't have the data handy at the moment. But I would say that it's -- we've seen a progression of improving index over the course of time from the time that we had 20% of our select service hotels close to the time in the Americas where we now have less than 5%. So I'd say we'll have a much better handle on all of this by the end of next quarter.

Shaun Kelley

Thank you.

Mark Hoplamazian

Sure.

Operator

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

Thomas Allen

Thank you. Thank you. So just in terms of instead of management fees are obviously the hardest to predict. So on the core, you reverse 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?

Joan Bottarini

Sure, Thomas, it's -- as a reminder, our fees in the U.S. are largely after hurdles that I had -- we have to achieve after GOP flow through positive to GOP flow through is an outcome. So when we think internationally where we structure of those contracts, our incentive fees are earned on GOP dollars. One thing that's encouraging is that in China, we're seeing in June, that over half of our hotels have a year-to-date positive result at the GOP line.

So we're going to be in a position here now to start to earn incentive fees in China, which is -- where we're seeing the greatest momentum in recovery. So as the recovery progresses, that's that incentive fee growth will follow particularly internationally. And, in the U.S., it'll be a little bit lag because of the structural reasons that I described.

Thomas Allen

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

Joan Bottarini

That's right.

Thomas Allen

Perfect.

Joan Bottarini

But I think we commented that the -- there was an adjustment made in the second quarter to some reversals that we could tick in from the first quarter incentive fees that we'd previously recorded. A small amount.

Thomas Allen

Yes. And then Mark in your prepared remarks, others encouraging that you said you expect your pipeline will grow this year. It was stable quarter-over-quarter, which I don't think anyone will be surprised to see in this environment. But what do you think is going to drive it to reaccelerate? Thank you.

Mark Hoplamazian

Well, I -- we have -- we just have a base of projects under discussion that are continuing, we're not getting developers who are withdrawing or suspending discussions. And a lot of the momentum that we've seen as we enter the second half of the year is coming in -- are EMEA and Southwest Asia region. I think Asia Pacific will remain actually strong in the second half of the year, I think that's making up for what I think will be a lag in select service production in the U.S.

But again, I think the other factor that we are tracking and pursuing vigorously is in conversions. And I do think that that will be at least as if not more productive for us this year as it was last year. The time -- exact timing of when those deals either make it into the pipeline or show up as own hotels -- I'm sorry, open hotels, is unknowable, because every one of these has got its own sort of profile. But yes, it's -- I mean -- and we've done a – you could imagine we're going back to the drawing board and we looking at everything afresh constantly. So our current perspective is based on our most recent assessments.

Thomas Allen

Thank you.

Operator

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

Mark Hoplamazian

David, if you're speaking we cannot hear you. You might be muted. Okay, Stephanie, maybe we'll just move to the next caller and make this our last question.

Operator

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

Kevin Koppelman'

Thanks a lot. Thank you. Just kind of 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 things you're working on to drive more leisure travel demand to the extent that you can?

Mark Hoplamazian

Yes, the answer in a nutshell is go local, go as local as possible. And our teams have demonstrated that understanding where pockets of demand exists is that that's been the key to seeing great revenue generation. A lot of -- this has been talked about widely across the industry. But it's true for us that a lot of our demand is from people who are driving to our destinations as opposed to flying.

So understanding how to source demand in different places and working that at a local level has been really the key to our performance. That was I think, really evident in how we went to market in China and produced tremendous results. It's been true for us in our resorts. And our resorts overall have really performed well. If you look at our resorts as a category, the numbers don't look particularly robust. But that has to do with the fact that Hawaii has been largely shut down.

So I think over the course of the second quarter, for example, 45% of the inventory in Hawaii was out of the market. So it's really been maybe the most significantly hit market from a total supply perspective. But for other resorts that do enjoy the drive to demand, and Joan cited a couple of them in her prepared remarks doing really, really well.

S I would say it's really very much a local focus. And I think having really strong teams on the ground in these hotels is critical, meaning on relationships that we've got with Travel Advisors especially for luxury resorts and luxury properties has also been very productive. A lot of this is based on trust. And a lot of this is based on relationships. So this is very much a exercise in sort of old school, hotel practices. And it's working. And I think that that's really what we've been relying on. And I think we'll continue to until we see a little bit bigger of a base against which we can actually see some compression in certain periods.

Kevin Koppelman'

Thanks so much.

Mark Hoplamazian

Sure. Okay. Thank you to everyone for taking the time to join us today. Take care and be safe. We'll look forward to speaking with you again soon.

Operator

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