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Hyatt Hotels Corp (NYSE:H)
Q2 2019 Earnings Call
Aug 1, 2019, 11:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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

My name is Jesse, and I'll be your operator for today. [Operator Instructions]Later, we will conduct a question-and-answer session. [Operator Instructions]I would now like to turn the conference over to your host for today, Brad O'Bryan Treasurer and Senior Vice President, Investor Relations and Corporate Finance. Please proceed.

Brad O'Bryan -- Treasurer and Senior Vice President, Investor Relations and Corporate Finance

Thank you, Jessie. Good morning, everyone, and thank you for joining us for Hyatt's Second Quarter 2019 Earnings Conference Call. I'm here in Chicago with Mark Hoplamazian, Hyatt's President and Chief Executive Officer and Joan Bottarini, Hyatt's Chief Financial Officer. Mark will begin our call today by sharing some insight on what we're seeing in the business and some highlights over the recent development activities. He'll then share a couple of highlights regarding our second-quarter operating results and provide brief updates on a few additional topics. Mark will then turn the call over to Joan, who will provide more detail on our financial results for the quarter as well as an update on our full-year outlook for 2019.

We will then take your questions. Before we get started, I would like to remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued late yesterday along with the comments on this call are made only as of today, August 1, 2019 and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold.

You can find a reconciliation of non-GAAP financial measures referred to in our remarks on our website at hyatt.com under the Financial Reporting section of our Investor Relations link and in last night's earnings release. An archive of this call will be available on our website for 90 days per the information included in last night's release.

With that I will turn the call over to Mark.

Mark S. Hoplamazian -- President and Chief Executive Officer

Thanks, O'Bryan. Good morning everyone and welcome to Hyatt's second-quarter 2019 Earnings Call I'd like to begin my comments today with my perspective on what we are seeing within some important markets. I'll first speak to [Phonetic] the group and transient picture here in the U.S.

Group rooms revenue realized in the quarter was a bit soft, but it was largely consistent with our expectations given the business that we have on the books coming into the quarter, and the negative impact of Easter. As we've mentioned previously, we have significant exposure in Chicago, which is our largest group market, and 2019 has been a very weak year.

Our group room revenues in the market are down 15% for the first half and overall RevPAR in the market for luxury and upper-upscale hotels is down 3.6% through the second quarter and the Central Business District is down 5.5% for the same period.

The good news for Chicago is that 2020 looks to be a strong year based on significant business already on the books with our group pace up in the market almost 9% in 2020. We have high visibility to the first two quarters of 2020 in particular which look outstanding for Chicago. Looking across the U.S., overall group production for the quarter was weaker than we had expected, primarily coming from association and SMERF business having lower participation rates.

Turning to corporate group demand, we've actually seen corporate group business continue to hold up quite well and cancellations have been minimal. While our total group production in the second quarter is down in the high-single digits, our corporate group production is up approximately 2%.

We expect group business in the second half, most of which is on the books at this point to be approximately flat versus last year and then strengthen into 2020. While group rooms revenue was down for the quarter, we've seen impressive demand on the transient side of the business where our hotel teams have done a remarkable job driving significant transient business to fill gaps created by softer group business. This was especially true in our group-based convention hotels in markets like Chicago, Orlando, and San Antonio.

Transient room revenue was up about 4% in the U.S. and over 5.5% in constant currency across the broader Americas region, because of certain particularly strong markets outside of the U.S. Both business and leisure transient demand improved and we gained significant market share in transient business and our full-service hotels in the U.S. during the quarter. Given the typically shorter booking window, it is difficult to predict with certainty what transient demand will look like going forward. But, we believe we will continue to have success in driving strong leisure and business transient revenue through the remainder of the year.

Apart from the U.S., I want to spend a little time on Greater China which came in below our expectations in the quarter. As you will hear from Joan when she shares our results for the quarter, Greater China is again showing some RevPAR contraction down close to 3% for our full-service hotels, driven entirely by declines in Macau and Hong Kong.

Economic conditions in Greater China, combined with ongoing trade tensions with the U.S. have weighed on demand affecting both Chinese travelers and inbound travel. In addition, consistent with the first quarter of this year, we have continued headwinds relating to the casino room block in Macau, which negatively impacted our Greater China RevPAR growth by approximately 170 basis points.

Finally, the demonstrations in Hong Kong have negatively impacted our second-quarter results and we expect the third quarter to reflect the impact of occupancies that have dropped by approximately 300 basis points along with rate declines of almost 8% in constant currency in the June and July period as compared to last year.

Based on recent indicators, we expect a difficult third quarter in Greater China with some RevPAR recovery in the fourth quarter. Our positive RevPAR forecast for the fourth quarter assumes that economic conditions improve in part as a result of economic stimulus that was initiated at the beginning of this year and that we see reduction in the disruptions caused by the demonstrations in Hong Kong.

Our outlook would be further enhanced if a new trade deal were put into place between the U.S. and China during the second half of the year. In the face of these challenging conditions, we gained market share during the second quarter in Greater China, excluding Macau. Another positive sign is that development activity remains very strong. Chinese owners and developers are currently still bullish long term and want to put capital to work while leveraging the strength of our brands.

Those are our couple of the most significant areas that are impacting our overall assessment of business conditions at this time.

Separately, I want to briefly comment on our reduced guidance for adjusted EBITDA which Joan will cover in more detail. I want to emphasize that those reductions are primarily driven by discrete items that are not related to our core lodging business, most notably the operational impact associated with construction delays at our 2 new Miraval resorts in Austin, Texas and Lenox, Massachusetts. Core demand at the Miraval resort in Tucson remains strong as we posted a 5% increase in Revenue Per Occupied Guests in the first half of 2019.

Our outlook for our core hotel business remains positive in the context of our reduced RevPAR guidance, driven importantly by our outstanding net rooms growth. Speaking of growth, we realized net rooms growth of 6.9% during the second quarter on a year-over-year basis, excluding the Two Roads hotels that are now part of our portfolio. If you were to include the Two Roads hotels, our net rooms growth was 12.6%.

On our first-quarter earnings call, we noted the opening of two Hyatt Centric hotels in Italy and two Andaz openings and Munich and Vienna. I'm pleased to note that our momentum in Europe continues.

During the second quarter, we converted two Hesperia properties in Spain that were signed in the first quarter. The hotels located in Madrid and Barcelona are open and under renovation with expected completion and final conversion to the Hyatt Regency brand in the second half of 2019. We also added the Hotel du Palais in Biarritz, France to our Unbound Collection by Hyatt. The hotel was recognized as one of only 25 Palace Hotels in all of France.

We are thrilled with all of these openings and about the success we continue to have in attracting developers and owners to invest in our brands.

In addition to the conversions I just mentioned. I also want to highlight, other recent conversions. We just last week, rebranded the Hotel Talisa in Vail, Colorado as the Grand Hyatt Vail. This 285 room luxury hotel reopened in November of 2017, after a $65 million renovation and represents a significant resort addition for us in a top ski destination.

We also recently executed an agreement to convert 665-room hotel in Hong Kong, which is expected to become the first Hyatt Centric in Greater China. The conversion and rebranding of the Hyatt Centric in Hong Kong is expected to be completed by the end of the third quarter of this year. All of these conversions, along with the majority of our existing pipeline are full-service hotels that drive high fees per key[Phonetic] While Joan will go into the details of our second-quarter results, I want to highlight two areas of our performance that are particularly important. The first is our market share performance. You'll recall in the first quarter that we gained a little over two points of share across the globe. During the second quarter, we gained almost two points of market share worldwide, again demonstrating the strong performance of our brands globally.

Similar to the first quarter, we drove market share gains across all regions of the world with the only exception being select-service hotels in the Americas, where our index was about flat for the quarter. The second item is our net rooms growth. The conversions I just mentioned combined with our strong pipeline of expected openings for the remainder of the year, provide us with confidence to expand our net rooms growth expectations for 2019 on which Joan will provide an update shortly.

We're seeing sustained levels of developer interest and activity across our brand portfolio. We are expecting not only a record level of openings this year but assuming our present pace of deal activity holds, we also expect to realize a record-level of signings as well. We believe we are well-positioned to continue to lead the industry in net rooms growth going forward.

Before turning things over to Joan. I'd like to update you on a few additional items. I'll start with asset sales under our incremental $1.5 billion sell-down commitment. We've previously indicated that we had a non-hotel asset on the market. We just this week closed on the sale of that property and the assignment of a related lease of a retail store adjacent to the Grand Hyatt San Francisco. The asset was sold for approximately $120 million.

Separately, we had indicated during our Q1 call that we intended to move forward with the marketing of two hotels. With respect to one of those hotels, we are currently advancing the sale process following a third round of bids and on the other hotel, we expect second-round bids within the coming week. Interest and pricing has been strong for both assets. It's still early and while no formal agreements have been signed, we are working to secure final agreements with buyers, including long-term management agreements in both cases and close prior to the end of the year.

With respect to our acquisition of Two Roads, integration efforts continue to progress smoothly and results are exceeding our expectations. As you'll recall, we are integrating the hotels into our systems and the World of Hyatt loyalty program by brand. We completed the transition of the Thompson brand in the first quarter and Joie de Vivre brand during the second quarter and we just completed the integration of Alila during July.

Our integration of destination resorts, which is the final brand for migration is scheduled to take place during August and September. Meanwhile, operating performance for performance for the Two Roads hotels has been strong and we continue to see developer interest in the brands. In fact, during the second quarter, we signed a deal for what would be the first Alila Hotel in Europe upon opening in a few years and we have signed three conversion hotels through our Two Roads developer network so far this year.

One of the drivers of our performance is the delivery of revenue from the World of Hyatt loyalty program, which benefits all of our owners. The momentum of World of Hyatt is very strong in part due to the compelling partnerships we have initiated with small luxury hotels, American Airlines, and Lindblad Expeditions. World of Hyatt enrollments are up 37% over last year in the second quarter, driven by large membership gains coming from on-property enrollments as well as digital enrollments through hyatt.com and our World of Hyatt mobile app.

Elite customer scores are up significantly and our global room night penetration has increased approximately 450[Phonetic] basis points to over 41% during the first half of 2019 compared to the same period in 2018. We believe engagement of World of Hyatt members fueled our transient demand and contributed to our market share gains during the second quarter.

As a recap, we are pleased with our ability to deliver strong results in a slow-growth environment. And I'm proud of our efforts to drive strong transient business through enhanced World of Hyatt engagement resolving a higher room night penetration and increased market share around the world.

Importantly, we are reminded daily of our exceptionally strong brands that are not only driving results but driving significant growth over time, as we continue to deliver industry-leading net rooms growth.

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

Joan Bottarini -- Chief Financial Officer

Thank you, Mark, and good morning everyone. Late yesterday, we reported second-quarter net income attributable to Hyatt of $86 million and earnings per share of $0.80 on a diluted basis. Adjusted EBITDA for the quarter was $213 million with systemwide RevPAR growth of 1.3%. The shift in Easter timing had a negative impact of approximately 40 basis points on our systemwide RevPAR growth for the quarter. Excluding Two Roads, the unfavorable Easter timing, and the net impact of real estate transactions, our adjusted EBITDA grew approximately 3% on a constant currency basis.

This result was driven by solid management and franchise fee growth, fueled by net rooms growth of 6.9% or 12.6% including the addition of Two Roads.

I'll now highlight our segment results starting with our managed and franchise business where we delivered growth in base, incentive, and franchise fees of approximately 12% or 6% excluding the Two Roads hotels, both on a constant currency basis compared to the second quarter of 2018.

Our industry-leading net rooms growth continues to drive levels of fee growth well in excess of RevPAR growth, even as we face some headwinds and tough comparisons to last year on incentive fees in certain international markets. Our mix of earnings from our managed and franchise business is up 54% of adjusted EBITDA before corporate and other, up from 51% in the second quarter of 2018.

I'd like to share additional perspective on each of our three lodging segments starting with the Americas, which accounted for approximately 77% of our management and franchising adjusted EBITDA in the second quarter. The Americas segment delivered full-service RevPAR growth of 2.5% while select-service RevPAR declined 2.4% for the quarter as U.S. supply growth continued to outpace demand in the upscale category, especially in certain markets where upscale brands are more heavily represented. Total U.S. RevPAR declined 0.3% driven by select-service hotels. Net rooms growth for this segment was approximately 11% including the Two Roads hotels. Excluding Two Roads, net rooms growth for this segment was approximately 4%.

Base, incentive and franchise fee growth of approximately 10%, drove adjusted EBITDA growth of about 6% for the quarter on a constant currency basis. Full-service group rooms revenue in the U.S. decreased approximately 3% driven by a decrease in group room nights, partially offset by a rate increase of approximately 1%. We experienced similar dynamic to what we saw in Q1 with some growth in corporate group business driven by rate increases, offset by lower demand coming from association and leisure group business. Our group revenue pace for the full year 2019 is now down approximately 1%, 140 basis point-drop from our prior earnings call.

U.S. group production for all-years[Phonetic] was down approximately 8% in the second quarter while in-the-year, for-the-year bookings were down approximately 18%. Looking ahead, group booking pace for all-years is up with the exception of 2021, which is now down just slightly. While group business was down for the quarter, U.S. full-service transient demand filled the gap as Mark mentioned earlier, with solid room revenue growth driven entirely by an increase in room nights driving record occupancy levels.

Moving on to our Asia Pacific segment, which accounted for approximately 15% of our management and franchising adjusted EBITDA in Q2. Full-service RevPAR for the segment increased 1.2% in the quarter driven by increased occupancy. Full-service RevPAR in Greater China decreased by 2.8% entirely driven by certain hotels in Hong Kong and Macau.

Japan and Southeast Asia delivered the strongest growth in this segment, consistent with what we saw in the first quarter. Net rooms growth for the segment was approximately 17% or 13% excluding the Two Roads hotels. Net rooms growth in Greater China was consistent with overall segment growth levels. RevPAR growth in comparable hotels along with strong net rooms growth drove an increase in base, incentive, and franchise fees of approximately 9% in constant dollars. Adjusted EBITDA grew approximately 24% on a constant currency basis.

Moving on to our Europe, Africa, Middle East, and Southwest Asia segment. This segment accounted for approximately 8% of our management and franchising adjusted EBITDA during the quarter. Full-service RevPAR increased 3.7% driven by occupancy increases. Net rooms growth was 14% or 13% excluding Two Roads hotels. Strength in much of Europe continue to drive results for the segment, while in the Middle East, room rates remain under pressure due to increased supply growth[Phonetic] outpacing demand.

Base, incentive, and franchise fee revenue for the quarter increased 4% on a constant currency basis. Base, management, and franchise fees increased while incentive fees were down 3% in constant currency driven largely by lapping of the World Cup business from last year, along with some weakness in the Middle East where our fee-base is more weighted to incentive fees.

Segment adjusted EBITDA decreased approximately 1% on a constant currency basis, driven by increased SG&A cost and a settlement fee received in the second quarter of 2018.

I'll now move on to our owned and leased business, which accounted for approximately 46% of our adjusted EBITDA before corporate and other in Q2. Owned and leased RevPAR increased 2.3% for the quarter. Owned and leased segment adjusted EBITDA decreased approximately 4% in constant currency, driven by asset sales in 2018.

Excluding the net impact of transactions and Easter timing, segment adjusted EBITDA was essentially flat for the quarter in constant currency. Our second-quarter consolidated comparable owned and leased margins increased 10 basis points versus prior year. Margins benefited from almost 2% of productivity gains but were offset primarily by lower group business and banquet food and beverage revenues in our owned and leased hotels

I will conclude my prepared remarks by providing an update on our outlook for 2019. Given some of the pressure we are seeing on RevPAR in certain areas such as our select business in the U.S. and overall demand in Greater China, we are reducing the top end of our RevPAR guidance range and now expect RevPAR growth in the range of 1% to 2% for the full year.

With respect to adjusted EBITDA, we are reducing our full-year 2019 guidance to a range of $755 million to $775 million. This represents a reduction in the midpoint of our guidance range of approximately $25 million about two-thirds of the reduction relates to our Miraval operations stemming primarily from construction-related delays and challenges at both the Austin and Lenox properties. Miraval, Austin opened earlier this year. However, construction challenges led to inventory displacement and resulted in operational difficulties. Effective as of the end of July, all rooms and facilities are complete and the full Miraval experience is now available to guests.

Looking forward, we expect the property to ramp and pick up momentum into the latter part of 2019. The Lenox project is behind schedule and facing operating losses while a portion of resort is required to remain open for contractual reasons. We expect the full Miraval experience will be open to guests in the second quarter of 2020.

The remaining third of the reduction in our guidance is driven by other factors. First, transaction activity including the sale of a joint venture interest in a hotel in San Francisco and the sale of a non-hotel asset which Mark referred to earlier with the combined impact to adjusted EBITDA for the remainder of the year amounting to about $5 million, and the remainder of the reduction is attributable to an incremental foreign currency headwinds, along with an impact to earnings driven by a reduced RevPAR expectations for the year.

As we look at how this plays out over the remainder of the year, I would first point out that after inclusion of the incremental $5 million in transaction headwinds, I just mentioned, we now expect a total of about $14 million in transaction headwinds during the second half of the year, almost entirely affecting the third quarter.

When you consider the impact of the $25 million-reduction in our earnings guidance to the back half of the year, we estimate that about two-thirds of the reduction in guidance will impact the third quarter, resulting in an expected decline in reported adjusted EBITDA compared to 2018.

Moving to our net rooms growth. Increased visibility to scheduled openings, combined with the conversions Mark mentioned earlier, give us confidence that we will exceed the midpoint of our prior net rooms growth guidance range and we are therefore increasing the range to 7.25% to 7.75%. Adjusted SG&A for the year remains unchanged at approximately $345 million inclusive of approximately $25 million in one-time integration costs related to Two Roads.

Our expected guarantee expense under the guarantee agreement, relating to four French hotels has decreased to the low end of our prior range, or approximately $40 million, due to improved performance in the underlying hotels and the benefit of foreign currency. We also expect a reduction in our effective tax rate for the year to 25% to 27% due to a favorable transfer pricing agreement by both U.S. and Swiss tax authorities.

With respect to shareholder capital returns, we've returned approximately $199 million to shareholders, inclusive of dividends through July 26 and approximately $509 million remains on our existing share repurchase authorization. Our full-year guidance for shareholder capital returns remains at approximately $300 million at this time.

The timing of expected hotel asset sales described earlier by Mark will be the primary driver of any updates to our guidance and share repurchases. For a full update on our 2019 guidance, please refer to our earnings release and supporting schedules.

In conclusion, we are pleased with our second-quarter results and execution. We are on track from a schedule and cost perspective to complete the Two Roads integration by the end of the year and meet our underwriting expectations. We drove strong transient demand offsetting lower group business demand. We again delivered solid growth in fees, driven by new and ramping hotels and we grew market share in every region around the world.

We continue to demonstrate our strength in driving growth through the expansion of our brands globally enhanced by some key conversions we secured recently. Given visibility of approved deals and expected signings over the remainder of the year, we believe we'll continue to be the leader of growth in the industry well beyond 2019.

We also expect to have more to share with you in the coming months on progress toward our expanded asset sell-down commitment as we continue to shift our earnings mix toward management and franchise fees.

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

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from Jared Shojaian with Wolfe Research. Your line is open.

Jared Shojaian -- Wolfe Research -- Analyst

Hi, good morning everyone and thanks for taking my question. Can you tell us what the Miraval EBITDA contribution is in 2019? I guess, how much are they losing in 2019? And then how much do you expect Miraval to generate at full run rate on an annualized basis? And do you think you'd get to full run rate at the start of 2020 or is it going to take more time to ramp?

Mark S. Hoplamazian -- President and Chief Executive Officer

Thanks, Jared. Answering to the first question relating to earnings with respect to Miraval in the aggregate is about zero, so down from what our prior expectations were coming into the year -- really driven by the construction disruptions that we've had, it's prevented us from having our inventory available to sell to guests, so as a consequence, we've had a lag in being able to ramp up Austin. We took some time to do some rectification work, which caused us to have to close a portion of the resort for some period of time and we are now -- past those rectification efforts and the resort is open and operating in -- with full inventory at this point. But, that just occurred recently.

With respect to Lenox, we similarly have had some delays, mostly in the permitting process and in-site[Phonetic] condition issues and as a consequence, that's been delayed as well.

So as we look at the ramp that we had expected to see, we are somewhere between two and three quarters delayed in those two properties and expect that Austin as per, sort of, the seasonality of that market, we'll start to see a more significant ramp in the fourth quarter, whereas the third quarter will probably be a period where we're just building demand. And then in, in the Lenox property, we have a portion of the property that we will maintain open and operating because we have some commitments to local homeowners to maintain a certain piece of the property in operation, but we really don't expect the ramp to begin until the second half of next year at Lenox.

Jared Shojaian -- Wolfe Research -- Analyst

Got it.

Mark S. Hoplamazian -- President and Chief Executive Officer

The only other thing I would probably point out just to give you some context for this is that Tucson continues to perform very well. It's basically on our pro forma from when we acquired the company and the brand. For reference point, if you look at the earnings level of Tucson by itself, just as a property, it will have revenues in excess of $50 million this year and an EBITDA level approaching $15 million and that's up 40% to 50% from the time we bought it. So I would say that the brand -- we have no real concerns about the brand and our feeses remains intact because we've seen continued, elevated levels of interest but also substantive dialog with some of our key corporate customers with respect to their well-being programs and programming and it's factoring into a number of initiatives that we've got under way, designing new experiences for a number of our corporate customers. So the feeses remains intact, the brand is strong, Lenox has been a challenge to complete and will continue to be until we finish it. But the market is proven. Canyon Ranch operates down the street from where we are -- the Miraval destination that we're creating and has been there for 30 years with a vibrant business, so we have high confidence that we're building into markets that are proven where we can compete very, very well.

Jared Shojaian -- Wolfe Research -- Analyst

Okay, thank you. And then just switching gears here. I apologize if I missed this, been on overlapping call, but I think you called out two hotels you are in the process of selling. Can you just give us a sense as to how much annual EBITDA those properties generate and how do you [Indecipherable] multiples that are coming in? How do those multiples compare to the transactions you did earlier last year?

Mark S. Hoplamazian -- President and Chief Executive Officer

Yeah, we're not going to comment on the specifics with respect to the two hotels that are being marketed at this point. We'll brief and update everyone upon closing of those two deals. What I can say is that we've maintained that the quality and the locations of our owned[Phonetic] real estate are excellent and I would say that that's been reflected in the interest level in the marketing effort that we've had under way for those two properties. With respect to the asset that we sold, the retail asset that we sold in San Francisco, that asset was sold for $120 million and Joan mentioned the EBITDA impact from that sale, plus the sale of our JV that we also sold earlier in the year in San Francisco, that is a $5 million impact for the remainder of this year and that's -- a bit less than half of that relates to the retail side, and a bit more than half of that relates to the hotel JV interest that we sold. And so, you can pretty much decipher what the earnings level was for the retail side and for the JV hotel from those data. So we're happy with the realization on the retail sale. We're happy with the realization on the hotel in San Francisco and the valuation for the hotel in San Francisco sale is in the range of what we were selling assets for in the prior stage of our sell-down effort.

Jared Shojaian -- Wolfe Research -- Analyst

Okay, thank you.

Operator

Your next question comes from Smedes Rose with Citi. Your line is open.

Smedes Rose -- Citi -- Analyst

Hi, thanks. I just wanted to ask you one more question on Miraval. Just looking back to a new purchase that I think back in early ' 17, you talked at the time about investing $375 million in total between the purchased price and construction. And then I think ramping to kind of a mid-30s EBITDA by 2021, do you feel that you can be on track for that. And is that total investment is still about the same?

Mark S. Hoplamazian -- President and Chief Executive Officer

Yeah. So, thank you for that. The total investment will be slightly higher than that number. My best estimate for you is somewhere in the range of $390 million to $400 million based on the addition of some villas that we built in Tucson, as well as the completion of the construction activity that we've got in Austin and in Lenox. Our expectation with respect to overall returns upon stabilization remains the same as it was when we came into the deal namely, to be able to achieve high single-digit rates of return

Smedes Rose -- Citi -- Analyst

And do you have any recourse to the constructors given -- on the construction delays with any kind of guarantees or no?

Mark S. Hoplamazian -- President and Chief Executive Officer

We, -- it's a complex set of issues that relate to some construction-related matters, which we, of course, undertake with contractors. But we've also had site condition issues, some weather issues, some labor issues especially in Austin where there seems to be a significant amount of construction under way everywhere and then approval processes which have taken some time. I think the corollary to the approval processes and obtaining permits in some of these jurisdictions, especially in Massachusetts is both positive and negative, it's obviously a negative now and we're not happy about some of the delays that we've had, but it also speaks to the barriers to entry and so upon opening, the ability for others to come into the market and compete directly or more limited because it's quite challenging to get these project completed.

Smedes Rose -- Citi -- Analyst

Okay, thanks. And then I guess I just wanted to switch gears and ask you one more question on the, on the upscale portfolio. I mean it's kind of seen relative under performance, [Indecipherable] for several quarters now. I think we're[Phonetic] in the fourth quarter and you did mention that some of it as new supply [Phonetic] where the Hyatt properties happen to be, but I mean, is there anything else going on relative market share wise or from competitors that you see that may be causing[Phonetic] a sort of relative under performance?

Joan Bottarini -- Chief Financial Officer

Smedes, this is Joan And I'll take that question. And yes, we have been talking about the supply demand dynamic as well as the concentration of our assets in particular markets that have been under pressure. But we also have talked about the programming changes that we made to the Hyatt Place brand and we started those changes in the fourth quarter of 2018 and the objective was to increase the value offering for our World of Hyatt members and to increase our direct channel mix ultimately at our Hyatt Place hotels and we're pleased to report that these strategies are -- we are achieving the outcomes that we set out and our direct channel mix is up meaningfully and it has been gaining momentum since we've -- we started the program and our World of Hyatt penetration in the brand is up 800 basis points in the quarter.

So we expect the growth rate in the segment to improve overtime -- over the last -- latter part of this year and with our revenue management and channel mix strategies we'll be fully optimized we think in the near term. We're building a stronger brand while increasing the value of our loyalty program and we are moving toward a more sustainable distribution strategy and providing better economics for our owners over the long term.

Smedes Rose -- Citi -- Analyst

Okay, thanks for that detail.

Joan Bottarini -- Chief Financial Officer

You bet.

Operator

Your next question comes from Gregory Miller with SunTrust Robinson. Your line is open.

Gregory Miller -- SunTrust Robinson Humphrey, Inc. -- Analyst

Thanks, good morning. I'm on for Patrick Scholes. Wondering if you could provide a little more detail on the Miraval guidance change and you could break out Austin and Lenox in terms of how much EBITDA declines are attributable to each property?

Mark S. Hoplamazian -- President and Chief Executive Officer

Yeah, I think that's not a level of detail that we're going to go through. I think in the aggregate, the shift for the year is what we described in the prepared remarks, I would say about $4 million of that change in terms of the total impact over the course of the year was actually realized in the second quarter and the remainder would, therefore, be in the second half of this year, with not a lot of season -- seasonality shifts between those 2 quarters. So just in terms of the profile of the outline over the course of the year, the measure over the course of the year. That's about how it plays out.

Gregory Miller -- SunTrust Robinson Humphrey, Inc. -- Analyst

Okay, thanks. And then a follow-up on Miraval as well. How should we interpret the ramp-up of these hotels compared to [Indecipherable] resorts? It's a --ramp-up to occupancy stabilization relatively comparable or is there a longer period, to gain acceptance from customers to these hotels?

Mark S. Hoplamazian -- President and Chief Executive Officer

I would say that the ramp-up is likely very comparable to a full-service hotel. When we look at new developments, for example, we, depending on the market and the nature of the hotel and location, a number of other things in terms of key demand drivers. We typically look at a two to three year ramp-up period, which is what we would expect here.

So when we talked about what we -- what our outlook was for getting ramped to the high single-digit rate of return figures that we had previously provided. We assume that it would be a two to three year ramp-up period once we are opened and that's, as I said earlier about a two or three-quarter lag from where we initially came into these projects to begin with. For reference, the occupancy for example at Tucson Miraval is running over 70% year-to-date, ADR is over $530 -- in the end, but maybe even more importantly than those statistics, recognize that the economic model, the actual commercial model for Miraval yields a business in which rooms revenue represents only about a third of the total revenue base for each resort and the remainder is food and beverage revenue, but very importantly it's experiences, treatments, and services on property

Gregory Miller -- SunTrust Robinson Humphrey, Inc. -- Analyst

Okay, thank you very much.

Operator

Your next question comes from Joe Greff with JPMorgan. Your line is open.

Joseph Greff -- J.P.Morgan -- Analyst

Hello, everyone.

Mark S. Hoplamazian -- President and Chief Executive Officer

Hi, Joe.

Joseph Greff -- J.P.Morgan -- Analyst

Mark, I was hoping you could add on to your comments about second-quarter group production being down in the high single digits, yet the corporate group was up by I think it's a 2% in the second quarter, implying that the non-corporate group stuff was down significantly, I kind of find those trends to be kind of inverse of what I would expect. Can you talk about what's driving the difference in the non-corporate group and the other group?

Mark S. Hoplamazian -- President and Chief Executive Officer

Yeah. So let's start with Chicago. I hate to come back to Chicago again because we talked about it already, but Chicago represents about half of this total negative variance that we saw in decline. So it is material. So we can't not talk about it and I would say about half of that progression is citywide related, a lot of association business in the second quarter at least had pick up that was -- levels of rush[Phonetic] that is actual attendee versus predicted or projected attendee levels lower than the expected. And so that's what we have seen. If you look at, sort of, on a year-to-date basis, U.S. group is down a couple of percent, again with Chicago representing a big portion of that. Meanwhile, year-to-date corporate group -- this is realized revenue not necessarily bookings is up in the mid-single digits and actually higher probably in the range of about 6% with the vast majority of that being rate.

So, we're seeing maintain -- and demand rooms -- demand is actually positive. So we're seeing corporate hold up both in terms of realized revenue, attendee -- actual attendance coming in line with what we would have expected and rate realization and we're seeing the same in the context of the production for future periods.

So when I look forward, I'm looking at the production coming through in the places where it matters the most to us, so hi-tech and electronics consulting and in terms of bookings, at least as opposed to realized revenue looking backwards, pharma is holding up as well. So corporate banking is about flat, retail is up, but really the significant negative variances that you'll see are in association and SMERF and so that's really what we're seeing at this point. When I look at the profile going forward, 2020 is up -- pace is up mid-single digits, rate is the majority of that. 2021 is down a small amount but given the patterns that are open in terms of where we're lagging, we feel confident we'll sell that. So not really worried about '21 in terms of holding its own or showing some progression and 2022 which is too far out to matter much at this point is up mid-single digits as well. So that's the -- that's the sort of profile and the evolution of this thing.

Joseph Greff -- J.P.Morgan -- Analyst

Great, thank you.l

Operator

Your next question comes from Bill Crow with Raymond James, your line is open.

Bill Crow -- Raymond James -- Analyst

Hey, good morning guys. I've got two or three real quick topics hopefully. Miraval, just so we're building a bridge critically[Phonetic] to next year, is it fair to assume that we got from Zero EBITDA to $15 million or is that on our way to $30 million to $40 million when it stabilizes, is that a fair step?

Mark S. Hoplamazian -- President and Chief Executive Officer

I think we'll be able to do is provide a little bit more color on this once we start talking about 2020 in the aggregate, but there is no question that we -- you now know relative to what our outlook was for this year, where we're ending up and you now have a better handle on what the timing is for both Austin and Lenox. So that's at least a bit of a guidance for how you can think about modeling it but will get into more detail about our outlook for 2020 once we get closer to the end of the year.

Joan Bottarini -- Chief Financial Officer

Yeah, One thing I would add to that, Bill is that we are sustaining some losses in Lenox, which I mentioned in my prepared remarks. So we'll keep that in mind as we give guidance for next year.

Bill Crow -- Raymond James -- Analyst

And Joan, on the French guarantee. Could you just remind us how much in total through this year, you will have paid out on that and when do we -- when can we anticipate that ending?

Joan Bottarini -- Chief Financial Officer

The contract ends in May of 2020. So we are very close to the end of the contract. The expense guidance that we're providing is $40 million for this year for 2019.

Bill Crow -- Raymond James -- Analyst

And what was the total of that, because that does go back a few years, right?

Joan Bottarini -- Chief Financial Officer

I don't have it in front of me, Bill.

Mark S. Hoplamazian -- President and Chief Executive Officer

We can get back to you with that number.

Brad O'Bryan -- Treasurer and Senior Vice President, Investor Relations and Corporate Finance

It has been filed. So, it's public information.

Joan Bottarini -- Chief Financial Officer

It's in the Q. It'll be in our 10-Q.

Mark S. Hoplamazian -- President and Chief Executive Officer

And in all the Ks that we filed. Yeah. So it's out there. We can go and research that but we don't have a figure here.

Bill Crow -- Raymond James -- Analyst

Okay. And then finally for me, on the select-service assets, you said that the RevPAR index was flat, can you tell us what it was flat at and the other thing is, I'm just curious whether it's -- are the brands and I'll put Hyatt and Hilton and Marriott, all in the same bucket are you all doing enough to ensure the performance of older properties against these newer properties? I mean are you enforcing and driving reinvestment enough or is that part of the problem?

Mark S. Hoplamazian -- President and Chief Executive Officer

So the first question you asked is, what are we flat at? when you ask that question, just need a clarification as to what you're really asking, are you asking --

Bill Crow -- Raymond James -- Analyst

Well, you said your index was flat in the quarter. Right?

Mark S. Hoplamazian -- President and Chief Executive Officer

Yeah.

Bill Crow -- Raymond James -- Analyst

Your RevPAR index. So 100 [Indecipherable].

Mark S. Hoplamazian -- President and Chief Executive Officer

You're asking, at what level of premium of over 100 are we, is that what you're asking?

Bill Crow -- Raymond James -- Analyst

Yeah.

Mark S. Hoplamazian -- President and Chief Executive Officer

So we are somewhere in the range of 107[Phonetic], as I recall, thereabouts, a little above that. And that's as a consequence of us being flat, that's where we were in prior period. With respect to the investment, we've -- our brands are young brands, we acquired the LodgeWorks business about five years ago, maybe six years ago now. And that really led us to the launch of Hyatt House and we've evolved the model of Hyatt House. Since then we refined it and really had great success in evolving the -- return on invested capital for our owners. But also, it's been a very strong brand and operates at an even higher index than the total and select. I think when I look at what we're doing with Hyatt Place. A lot of the work that we did last year was a significant revamp of the brand itself and the programming that Joan referenced earlier was purposely designed to both enhance the food and beverage offering but also drive -- it was really a distribution strategy to drive dramatically higher World of Hyatt penetration and internal channel mix and that's precisely what we've done.

She mentioned that we've got, -- World of Hyatt penetration, that's up 800 basis points year-over-year. So very significant move in terms of what the profile of our business looks like, but it wasn't, it wasn't, it was driven largely by the changes that we made in the product and the offering. So when we launched this brand I remember when we started taking share and really established the platform for the brand, this is even before we were in urban locations and really accelerated the growth of the brand. our Board asked, "so how are you gaining share and what are you going to do to ensure that you're not the victim of some other -- [Indecipherable] down the road" and we made a commitment at that time and we practiced the constant reevaluation of what we're doing. So we've rolled through a number of changes, we've reduced footprint. We've reduced the built space for executing either a Hyatt Place or Hyatt House all of that was responsive to making sure that from a investment perspective, it was attractive to developers and we continue to evolve the F&B offerings in particular, and in -- the most recent instance of that which was in the fourth quarter of last year, it was, it was really not just to enhance the offering but also to drive distribution channel mix shift, which we've achieved.

Bill Crow -- Raymond James -- Analyst

Okay, thank you. I appreciate the time.

Operator

Your next question comes from David Katz with Jefferies. Your line is open.

David Katz -- Jefferies -- Analyst

My questions have been asked and answered. Thanks very much.

Operator

Your next question comes from Rich Hightower with Evercore ISI. Your line is open.

Rich Hightower -- Evercore ISI -- Analyst

Hi, good morning out there guys.

Mark S. Hoplamazian -- President and Chief Executive Officer

Good morning.

Analyst

I've got a two-parter here on the pipeline. First one, quickly, can you remind us what portion of the total pipeline in place comes from conversions versus new builds? And then the second part, just given the composition of what Hyatt has in the pipeline relative to some of your peers, predominantly concentrated in luxury and upper-upscale and the higher-end segment, can you talk about how sensitive developers are in those segments to construction financing and fluctuations in the economy, maybe that's not a, -- it's not a question for the next couple of years out, but maybe in years three, four and five, just how that would impact you guys relative to some of your peers?

Mark S. Hoplamazian -- President and Chief Executive Officer

Sure. On the first question, the answer is, we actually don't predict conversions and build that into our pipeline or into our expectations with respect to net rooms growth for the year, the very nature of it is that it's you have limited visibility. I think the major thing that we've seen evolve this year is that our the activity base, activity level around conversions has just ramped up significantly, so we're thrilled about that especially given the quality of what we're bringing on. I mean the hotels that we recently committed to, some of which are now open and operating under our brands and others are under renovation or conversion. Each and every one of them is an amazing location and phenomenal assets. So, we're really happy with what we're seeing. And I think the network effect of having such an intense focus on the high-end customer and bringing together the value proposition around the world of Hyatt through small luxury hotels and the other partnerships that we've got, that yields an ability to actually impacts the results of these kinds of hotels and that's why I think we're seeing some of the conversions that we've now signed.

I also want to point out that three conversions this year have come from our Two Roads, our new relationships through our Two Roads developer [Indecipherable] and that's actually very exciting as well. We always expected that we would be able to impact growth going forward of those brands, but we didn't, we didn't count on or didn't leave that -- didn't model the idea that we would actually have conversions coming out of that, that were as meaningful as the ones that we've gotten in part[Phonetic]. So there is a definite change in what we're seeing this year on the conversion front.

With respect to the types of owners and developers that are building the kinds of hotels that we've got in our pipeline. First, just by way of reminder, I think 70% of our pipeline is full-service hotels around the world, so that will frame this comment. My quick answer is, it depends a lot on the markets that we're in. Historically, the developments that we've had in China have been with developers who are extremely well-capitalized and are not really riding a financing wave one way or the other. There may be other ways for their riding, but it's not financing. With respect to the other regions, A lot of it has to do with the type of hotel and how the capital stack has been created,

I think in some cases, where you've got projects like the one that's being built right now in Portland. It's a headquarters hotel and its contiguous with the, with the Convention Center. That's a project that is not really going to rise and fall in the back of financing as much as maybe a resort location in maybe an emerging market or something like that.

So I would say that the developers that are developing upscale and maybe other segments although upscale is really the segment we have experience in. I think they do have a model that they run with respect to financing, that does impact their decision to put a shovel in the ground and I think that's probably more significant than it is for the core of our developer base.

Analyst

Okay, that's great color, Mark. Thank you.

Operator

Your next question comes from Michael Bellisario with Baird. Your line is open.

Michael Bellisario -- Robert W. Baird & Co. -- Analyst

Good morning, everyone. Just want to go back to your comments on the group side. Maybe, can you frame-up the booking window, what you're seeing there and then any noticeable changes and maybe people's willingness to either book further out or is it still all short term at this point?

Mark S. Hoplamazian -- President and Chief Executive Officer

Yeah. So the profile of what we're seeing in terms of production is, I would describe as sort of uneven. So the significant changes in the quarter production overall, the impacts were in the quarter itself. That is groups that didn't that had significant wash[Phonetic], didn't have the same level pick up as we expected and also in 2021 -- we just saw a decline in bookings for 2021, which has led to our '21 pace coming down a bit. Again, I think that '21 number is a temporal issue, we'll track that overtime and the bookings in ' 20 and in '22 and '23 have remained pretty healthy. So I would say just in terms of profile. It's been a bit uneven. I can't, I don't know that I have a theme[Phonetic] to provide to you at this point. And in terms of segments, as we mentioned many times, this has really been mostly an association and SMERF issue more -- much more so than a corporate issue

Michael Bellisario -- Robert W. Baird & Co. -- Analyst

That's helpful. Thank you.

Brad O'Bryan -- Treasurer and Senior Vice President, Investor Relations and Corporate Finance

Jesse, we will take our last question now.

Operator

Your last question will come from Vince Ciepiel with Cleveland Research. Your line is open.

Vince Ciepiel -- Cleveland Research -- Analyst

Great, thanks. At the Investor Day, you talked about loyalty contribution. And I think it was about 38% of room nights, which was up a few points from 2017. Curious if you could update us if you're continuing to grow that as you've looked through the first half of this year? any update there would be helpful.

Mark S. Hoplamazian -- President and Chief Executive Officer

Sure. Yeah. Thrilled to report that the penetration is up 460[Phonetic] basis points over the first half of the year. A part of that is driven by very significant new enrollments. A lot of that is on property enrollments. So as much as we talk about and we're thrilled with -- the partnerships that we developed and created and launched under World of Hyatt with American Airlines and small luxury hotels and now Lindblad Expeditions, the majority of the activity on the enrollment side has been on property and then digitally through Hyatt.com and through our app. So we're seeing additions come through, sort of, our core [Indecipherable] not simply just having people who are becoming members by virtue of our affiliations and our partnerships. I think that is additive, but it's not the primary driver and I think that -- I think of that is a great sign of health. That is -- it's -- we're on good solid ground in terms of the additions to our membership base.

And I think that these partnerships, once they start to yield the value that we, that we know that they will deliver to our members will simply enhance the enrollment levels overtime. So we're really excited about this, but we're frankly tracking ahead of what we thought was possible in terms of moving the needle on penetration, and it remains a really important focus -- area of focus for us as we, as we go forward.

Vince Ciepiel -- Cleveland Research -- Analyst

Great. And then maybe just thinking big picture about EBITDA growth trajectory. I know there's a lot of moving pieces in this year with the lapping of one-timers, the dispositions, the most recent Miraval construction delays, some FX , but when you adjust for those things. Do you think you are in the kind of the targeted 5% to 10% core growth model that you laid out? And then as you move into next year and some of these issues abate and roll off, is that a fair way to think about growth going forward?

Joan Bottarini -- Chief Financial Officer

So for the quarter, we reported 3% core growth, excluding all of those items that you mentioned, and we expect for the full year to still be on track to be at the lower end of our growth model range that we presented at Investor Day and going forward into 2020 and beyond, we are still in -- have confidence with our growth model and the projections, it suggests relative to the growth of RevPAR and net rooms growth , etc..

Mark S. Hoplamazian -- President and Chief Executive Officer

Yeah, I would just add that, by way of reminder that growth model construct is a long-term growth model, it's not meant to predict a month or a quarter or even maybe a year, but what I can tell you is that one of the key drivers of that is the expansion, net rooms growth and the expansion of our network of hotels and the fees that come from that. And the way I feel is that we've put a number of pieces in place to sustain that overtime and maintain the momentum that we've got in the net rooms growth area and with the acquisition of Two Roads, we've now extended and sort of enhanced the number of places in which we can actually sustain fee growth, so which is the key driver that we're focusing on, as we, look at our model going forward, as we move to be more fee-based over time -- we will continue to get more and more fee-based over time as we sell down more assets. So that ends up being the key focus. And my confidence level is high when you look at our pipeline, our net rooms growth and then the conversion of that activity into fees. So I think the model is intact. And it is designed to be sort of a long-term framework for how you can think about what we're doing

Vince Ciepiel -- Cleveland Research -- Analyst

Great, thanks.

Operator

This concludes our Q&A session. I'd like to turn the call back to the presenters for any closing remarks.

Mark S. Hoplamazian -- President and Chief Executive Officer

All right, thanks, Jessie. And just thank you to everyone for taking the time to join our call today.

Operator

[Operator Closing Remarks]

Duration: 64 minutes

Call participants:

Brad O'Bryan -- Treasurer and Senior Vice President, Investor Relations and Corporate Finance

Mark S. Hoplamazian -- President and Chief Executive Officer

Joan Bottarini -- Chief Financial Officer

Jared Shojaian -- Wolfe Research -- Analyst

Smedes Rose -- Citi -- Analyst

Gregory Miller -- SunTrust Robinson Humphrey, Inc. -- Analyst

Joseph Greff -- J.P.Morgan -- Analyst

Bill Crow -- Raymond James -- Analyst

David Katz -- Jefferies -- Analyst

Rich Hightower -- Evercore ISI -- Analyst

Analyst

Michael Bellisario -- Robert W. Baird & Co. -- Analyst

Vince Ciepiel -- Cleveland Research -- Analyst

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