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spk08: Good morning and welcome to the Hyatt Third Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, we will conduct a question and answer session. To ask a question, you'll need to press star 1 on your telephone. As a reminder, this conference call is being recorded. I would now like to turn the call over to Noah Hoppe, Senior Vice President, Investor Relations. Thank you. Please go ahead.
spk03: Thank you, operator. Good morning, everyone, and thank you for joining us for Hyatt's third quarter 2022 earnings conference call. Joining me on today's call are Mark Hoplamazian, Hyatt's president and chief executive officer, and Joan Botterini, Hyatt's chief financial officer. Before we get started, I would like to remind everyone that our comments today will include forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties, as is described in our annual report on Form 10-K. Quarterly reports on Form 10Q 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 today, 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 this morning's earnings release. An archive of this call will be available on our website for 90 days. And with that, I'll turn the call over to Mark.
spk04: Thank you, Noah. Good morning, everyone, and welcome to Hyatt's third quarter 2022 earnings call. Before we begin, I would like to address Hurricanes Ian and Fiona. Guided by our purpose of care, the Hyatt family came together to support impacted colleagues and communities in both Florida and the Dominican Republic including funds provided by Hyatt, a colleague-created fund, and a donation by the Hyatt Hotels Foundation to the American Red Cross relief efforts. To all of our colleagues who continue to show unbelievable generosity and care, thank you. And to all of our colleagues who continue to require assistance, the Hyatt family is here for you. As we dive into our results, I'd like to first acknowledge an important milestone in the history of Hyatt that was reached during the quarter. our 65th anniversary since Hyatt's founding by the Pritzker family. From opening the first hotel in 1957 to opening our 1200th hotel this past quarter, we're reminded of our incredible transformation over this time. And our results in this quarter reflect the impressive momentum we are building. It is a point of pride for the entire Hyatt family that we honor this anniversary with the strongest third quarter in the company's history, building upon the record of performance that we delivered last quarter. The significant growth in our core business and the contribution from ALG continue to fuel our record results. Through the first nine months of this year, we have already generated $676 million of adjusted EBITDA plus $66 million of net deferrals and $48 million of net finance contracts. To put the magnitude of our growth into perspective, the sum of these three numbers is more than 40% above the $563 million of adjusted EBITDA we generated during the first nine months of 2019. The combination of the aggregate financial results, the significant shift in our mix of earnings, and the increasing levels of conversion of earnings into cash flow all demonstrate the success of our transformation towards an asset lighter business model and reflect excellent execution of our leaders and our teams globally. In addition to ALG continuing to perform well ahead of expectations, our legacy Hype business is also generating adjusted EBITDA at record levels when adjusting for the net impact of asset dispositions. And it's notable that these strong results have been achieved while group, business transient, and cross-border travel were in a state of limited recovery during the first half of this year, with system-wide rest power 14% below 2019 levels over that timeframe. However, as the third quarter demonstrates, all segments are rapidly improving. Meetings are back in full force. Corporate customers are traveling once again, and the vast majority of the world is now reopened to cross-border travel. Additionally, serving as a backdrop for our continued optimism, the sustained strength of demand from our leisure guests shows no signs of softening. It's clear that people are prioritizing experiences and connection. As we see in the upcoming festive season where our resorts are pacing 30% ahead of 2019 or the amount of group business being booked into 2023 at our America's Full Service managed properties, which is 30% higher than 2019 levels. There's ample room for further growth of travel spent as the underlying behavioral drivers of travel demand are powerful and durable. and will, in our opinion, propel travel back to its pre-pandemic share of wallet relative to the broader economy. Our performance this quarter reaffirms the earnings power of Hyde's unique positioning with our focus on the higher-end customer, our industry-leading growth, and our concentration of revenue derived from leisure and group segments, all amplified by the positive operating leverage in our business. The result is a model that is producing significant growth in earnings and free cash flow, allowing us to invest opportunistically to grow our fee business and, at the same time, buy back approximately $290 million worth of shares through the first 10 months of this year at attractive prices. In addition, the meaningful progress we have achieved toward our asset-light disposition goal has provided liquidity to reduce our outstanding debt by $836 million year to date through October, demonstrating our ongoing commitment to our investment grade profile. In summary, we are operating from a position of strength as we continue to extend our efforts to scale care for each of our stakeholders as we rapidly transform Hyatt in a way that we believe is truly differentiated from other players in the industry. our momentum remains extremely strong. Since our last earnings call, we announced three strategic deals that further transform Hyatt. And as a result of these announcements, and with special reference to Lindner Hotels, we are raising our full year 2022 net rooms growth guidance to approximately 6.5%. Let me take a moment to highlight these asset-like deals that broaden our representation in key markets and service platforms for growth into the future and create compelling experiences for our guests. First, our agreement with Lindner Hotels, which is a family-run German hospitality business. This agreement will significantly increase the number of franchise properties in Europe, bringing a collection of more than 30 vibrant hotels and 5,500 rooms into the GDB by Hyatt brand. with the majority of these hotels expected to join our system by the end of this year. Representing the next phase of our growth story in Europe, this deal expands our brand footprint into 15 new markets and meaningfully grows our scale across Germany, a key source market that will strengthen our network effect throughout Europe. With the inclusion of Lindner, we will have grown our room count in Europe by nearly 25,000 rooms and will have tripled in size over the past four years, and we are just getting started. Second is our joint venture with Kyaku to launch Atona, a new luxury hospitality brand of modern-style hot springs ryokans in Japan. This joint venture increases Hyatt's luxury footprint and fills a unique opportunity to be the first international company to enter the ryokan space. We are doing so through a scalable platform that will provide a deeply unique set of experiences for our guests. Development plans are underway and we expect to open the first Atona branded RioCons by 2025. Third is the addition of five all-inclusive resorts in Bulgaria, further strengthening our leadership position in the all-inclusive category as we grow in new markets in Europe. This announcement with a pre-existing Hyatt property owner marks the planned entry of our all-inclusive resorts, all under ALG brands, into a third European country, joining locations in Spain and Greece, and enables us to attract a diverse group of travelers seeking immersive, all-inclusive resort experiences. We expect the majority of the resorts to open under our brands in 2023. The deals share the common thread of driving asset-like growth and enriching the breadth of experiences for our guests. The third parties in these deals have chosen to work with us because of our expertise and proven track record in lifestyle and all-inclusive brands. We're cultivating a unique portfolio that drives deepening loyalty, leading to stronger connectivity and engagement with our members. This is further evident when looking at the World of High program, where membership has increased by 20% in the past 12 months alone. It's not just our guests who are taking notice. The World of Hype program was recently named the world's number one best hotel rewards program by U.S. News & World Report. Looking ahead, we're pursuing other asset-like platform opportunities beyond our ongoing organic growth through individual development deals. The unique nature of these opportunities is driven by both the positive attributes of our network that I just described and the realization by many owner-operators that the financial commitment and complexity to successfully scale a brand and management platform are increasingly formidable. As always, we'll stay highly disciplined both in terms of quality and economic value creation and look forward to keeping you informed of our progress in this area. Moving to our latest business trends, comparable system-wide REVPAR for our legacy-high business was up 2% in the third quarter compared to 2019. We're up 5% when excluding greater China. The strength and breadth of our recovery has been remarkable. On a comparable system-wide basis, our managed and franchised hotels generated 40% more in rooms and food and beverage revenue in the third quarter as compared to the first quarter of this year. Redfar has strengthened across the world with nearly all of our major geographic areas outside of Asia Pacific now trending well ahead of 2019 levels. In the third quarter, we experienced extraordinary growth in Europe, South Asia, Latin America, and the Caribbean, all of which were more than 20% ahead of 2019 levels. The United States continued to strengthen with REFAR growth of 3% in the third quarter versus 2019. Asia Pacific was the only region that continued to lag in the recovery, though we remain encouraged. From a segmentation perspective, we experienced another record quarter of leisure transient revenue, which was up 20% to 2019 levels on a comparable system-wide basis. Outsized leisure demand has continued into the fall, and we see no meaningful shifts in booking behavior to suggest that this is changing. Leisure transient revenue is pacing more than 20% ahead of 2019 for the remainder of 2022 and into the first quarter of 2023. Group room revenue also experienced momentum during the third quarter, finishing approximately 3% below 2019 levels with very strong bookings during the quarter for future periods. We anticipate that October, typically our busiest group buff of the year, will finish ahead of 2019 levels. Further, bookings into 2023 have been robust. In the third quarter, we booked 30% more in group business into 2023, for our America's full service managed properties as compared to the same booking period in 2019. And the rates at which we are booking business are more than 17% higher. In addition, adding to our optimism is the recent experience of our sales leaders at IMEX, a top meeting planner conference. The tone from the top 1500 US meeting planners was enthusiastic and optimistic and we've seen continued strength in near-term demand. There is strong pent-up demand, and we expect to see a continued acceleration in group business. As for business transient, we've been pleased to see a notable acceleration in demand with revenue trending at approximately 80% of 2019 levels in the post-Labor-Day period in September, with further improvement into October. We're seeing strong recovery in certain sectors that have previously lagged, such as tech, manufacturing, and entertainment. Given our conversations with customers and executives, we expect Business Transient to continue this positive trajectory in the months ahead. Turning to ALG, I'd like to take a moment to recognize the one-year anniversary of our acquisition, which established Hyatt as having the largest portfolio of luxury all-inclusive resorts in the world and accelerated our asset-light transformation and net rooms growth. This quarter, ALG performed exceptionally well with net package REVPAR for all inclusive properties managed by ALG in the Americas up 29% in the third quarter compared to 2019. Looking ahead, gross package revenue, which typically has a longer booking window, is pacing approximately 30% ahead of 2019 for the remainder of the year and as we look into the first quarter of 2023. It's very encouraging to see PACE more than 16% ahead of 2022, suggesting continued strength across the ALG portfolio next year. In summary, as we assess overall business trends, we maintain our optimistic outlook. Future bookings remain strong, and the performance of our hotels post-Labor Day has exceeded our expectations, with Group and Business Transient showing encouraging momentum. Conversations with corporate customers continue to suggest further recoveries ahead for Group and Business Transient, and Leisure Transient shows no sign of slowing, as evidenced by the strong bookings at our resorts through the first quarter of 2023. Moving to real estate transactions, in October, we sold the High Regency Greenwich in Connecticut, resulting in gross proceeds of $40 million. And as we have consistently done in the sale of our hotel assets, we entered into a long-term agreement to maintain our brand, in this case, with Hyatt continuing to manage the hotel. In addition, we sold the entity that was the lessee of the Hyatt Regency Mines in Germany and entered into a long-term franchise agreement. With these transactions, we've realized $721 million in proceeds from asset sales at an average multiple of 15 times towards our $2 billion sell-down commitment net of the $135 million acquisition of Hotel Irvine we announced last quarter. We continue to pursue the sale of one existing small asset, and we've launched a marketing process for the sale of one additional hotel. We continue to be very focused on realizing the most attractive valuations and securing durable long-term management or franchise agreements. and we remain highly confident in achieving our sell-down commitment. To be very clear, our sell-down commitment is net of any acquisition activity. In closing, it was another tremendous quarter, both in terms of our financial results and progress towards our strategic goals. The asset-light deals we announced will materially expand our presence at high barrier to entry markets and are expected to provide platforms for future growth for years to come. Lastly, despite an uncertain macroeconomic backdrop, we continue to see demand accelerating with no signs of slowing as our guests and our business customers prioritize experiences and connection. We remain very optimistic and are thrilled with the transformation that is underway. I'll now turn it over to Joan to provide additional details on our operating results. Joan, over to you.
spk09: Thank you, Mark, and good morning, everyone. My commentary today will cover consolidated financial results, key drivers of our strong performance, capital allocation execution, and expectations I can share for the remainder of 2022. This morning, we reported third quarter net income attributable to Hyatt of $28 million and diluted earnings per share of 25 cents. As Mark mentioned, this was a record third quarter with adjusted EBITDA of $252 million including ALG's contribution of $78 million. Additionally, net deferrals were $17 million and net finance contracts were $26 million. The strength of our results was largely driven by our outsized growth in fee revenue. Total management franchise and other fees were $224 million, an increase of 50% from the third quarter of 2019, driven by the significant fee contribution from ALG and our industry-leading organic net rooms growth over the past five years. As a result of our expansion in fee revenue, the mix of our fee-based earnings relative to real estate earnings was in excess of 70% for the quarter, illustrating how we are quickly transforming our earnings model. If you also include ALG Vacations, which is inherently asset-light given its revenue is primarily derived from commissions, and the level of capital investment required is minimal. Our total mix of asset light earnings relative to real estate earnings is even higher. Turning to our legacy Hyatt results, adjusted EBITDA was $174 million for the quarter, which is approximately 31% higher than 2019, adjusted for currency and the net impact of transactions. Our management and franchising business benefited from our larger system size in a more fully recovered REVPAR environment. As Mark mentioned, system-wide REVPAR was 2% above 2019, with the growth all driven by our Americas and EME and Southwest Asia segments. These two segments reported adjusted EBITDA greater than 2019 by approximately 30%. Additionally, our owned and leased segment generated $66 million in adjusted EBITDA for the quarter, down 10% to 2019 on a reported basis, while being up 41% to 2019 when adjusted for the net impact of transactions. Comparable owned and leased margins improved to 24.1% in the quarter, up 720 basis points to 2019 levels, for the same set of properties, reflecting an increase in average daily rate of 17% versus 2019 and another quarter of strong operational execution. International comparable owned and leased properties accounted for over half of the adjusted EBITDA growth to 2019, and we continue to see outperformance in our properties in the United States. As we look ahead to the fourth quarter, we're seeing a continuation of these positive trends driven by a strong recovery in group revenue, steadily improving business transient demand, and sustained strength from leisure. Turning to ALG, the performance of this segment once again exceeded our expectations, driven by continued strength in net package REVPAR and guest departures in the third quarter. Adjusted EBITDA was $78 million. Net deferrals were $17 million and net finance contracts were $26 million. As we noted in the past, when assessing ALG performance, it's critical to include net deferrals and net finance contracts due to the timing of the recognition of GAAP revenue and expense of Unlimited Vacation Club memberships. To further illustrate how net deferrals and net finance contracts track to cash flow generation, and represent value creation of the business, we have included a new enhanced disclosure in Schedule A3 of our earnings release. This free cash flow generation of ALG continues to be strong, and three key areas drove ALG financial results. First, net package REVPAR for the same set of properties managed by ALG in the Americas was up 29% to 2019. reflecting strong net package ADR growth of 25%. Total net package revenue was up 91% to 2019, reflecting the significant net rooms growth since 2019, primarily due to ALG's expansion in Europe and organic growth in the Americas. Second, approximately 9,200 membership contracts were signed for ALG's Unlimited Vacation Club in the quarter. exceeding 2019 levels by 32%. Third, ALG Vacations had approximately 682,000 guest departures and realized strong unit pricing. The improvements to the operating model and ongoing optimization of the mix of revenue, coupled with strong demand, continues to produce very strong levels of earnings. And during the third quarter, ALG vacations also benefited from certain airline refunds resulting in a one-time positive impact of $4 million. In summary, ALG posted another quarter of very strong financial results. We're optimistic about the fourth quarter for several reasons, including the expected continued strength of leisure travel demand, favorable pricing environment, and airlift that remains above 2019 levels for key America's destinations. I'd also like to provide an update on our strong cash and liquidity position. As of September 30th, our total liquidity of $2.9 billion included $1.4 billion of cash, cash equivalents, and short-term investments, and approximately $1.5 billion in borrowing capacity on our revolving credit facility. Our total liquidity as of September 30th excludes approximately $300 million of restricted cash to redeem floating rate senior notes. In October, we used this restricted cash to redeem approximately $302 million of floating rate senior notes, inclusive of interest. And also in October, we used cash on hand to redeem approximately $353 million of senior notes, at par and inclusive of interest, in advance of their July 2023 maturity realizing a significant savings in future interest expense. As a result of these transactions, the total outstanding principal on our senior notes was $3.1 billion as of October 31st. These actions are a direct result of our strong realization of asset sale proceeds thus far this year and demonstrate our ongoing commitment to our investment grade profile. Record operating performance and asset-like growth is contributing to our strengthening free cash flow. During the third quarter, we repurchased $162 million of Class A common shares. And during the month of October, we repurchased an additional $27 million of Class A common shares. And as of October 31st, we now have approximately $638 million remaining under our share repurchase authorization. Finally, I'd like to make a few additional comments regarding our 2022 outlook. As a result of the strong operating trends Mark covered earlier, we now expect full-year 2022 system-wide RevPAR to grow between 60% and 65% to 2021, and to be down between 7% and 4% to 2019. Additionally, consistent with our communication in the second quarter, We continue to expect adjusted SG&A to be in the approximate range of $460 to $465 million, excluding any bad debt expense. We expect ALG adjusted SG&A will be approximately $20 million lower than the outlook provided last quarter, offset by legacy Hyatt adjusted SG&A that will be approximately $20 million higher. These updates reflect payroll savings and a delay in certain investment spend for ALG, with the savings largely offset by an increase in incentive compensation expense and other one-time costs in our legacy Hyatt business. We continue to expect capital expenditures for 2022 to be approximately $210 million, which includes legacy Hyatt of $185 million and $25 million for ALG. Lastly, turning to NetRooms growth, as Mark mentioned, with our continued transformation and recently announced strategic deals, we are raising our full year 2022 NetRooms growth guidance to approximately 6.5%. I will conclude my prepared remarks by saying we are very pleased with our third quarter results, which demonstrate our unique positioning and differentiated model. The strong, positive operating leverage in our business model and the value creation ALG has brought to Hyatt one year after acquisition is fueling record earnings and free cash flow. We're proud of the accomplishments we've achieved to advance our long-term strategy and are excited for the recently announced deals accelerating our asset-like growth while at the same time reducing leverage and returning capital to shareholders. Thank you, and with that, I'll turn it back to our operator for Q&A.
spk08: Thank you. As a reminder, to ask a question, please press star followed by the number one on your telephone keypad. To withdraw your question, please press star. John Kelly from Bank of America. Please go ahead. Your line is open.
spk06: Hi, great. Good morning, everybody. Thank you for taking my question. Mark or Joan, I'm curious to get a little bit more color just on you know, what's implied by, you know, kind of where you're at with the fourth quarter outlook. I know there's a variety of different ways to disclose this as we're kind of looking both year on year and versus 2019. But the way we're kind of thinking about it is, you know, is the core trend here a little bit better in the fourth quarter versus what you saw in the third quarter? If third quarter was up 2% global, is what's implied by your guidance in the fourth quarter a little bit better than that? And maybe just walk us through some of the puts and takes that might be driving that if that's the case.
spk09: Yes, thank you, Sean. I'll start and then maybe Mark wants to add on a bit too. I would say for the fourth quarter, our guidance range that we increased about a point at the midpoint of the range reflects about the same to a little bit better for the fourth quarter. As we look at, we are building confidence here in the forward-looking bookings that we're seeing that we are experiencing both on the group side with in the quarter, for the quarter, third quarter group bookings up 20% for the fourth quarter. And the festive period that we have extending now between November and December up 30% for the AMR properties. So some of these longer out bookings that we're seeing in the fourth quarter are giving us confidence that we'll be at or above those levels compared to 2019. and that's what's embedded in our guidance numbers.
spk04: Yeah, I think what Joan said, I agree with what Joan said. We finished October ahead of 2019 by five points if you exclude Greater China. In group, we were up sequentially September to October 18% in actualized business, And the near-term booking and stay momentum is just palpable. It's very, very clear to us. And when we think about the dynamics, the shortening booking curve, I'll just give you one example that will really, I think, illustrate this very well. Six months ago, we were minus 7% pace-wise for October of this year. We finished October 6% above. So you can just see what the impact of that shortened booking curve is. And corporate demand continues to significantly sustain. Total transient, we don't have a good breakout yet because we just closed the month. Total transient revenue for October was 4% above September. So we go into the quarter not sort of holding on by our fingertips, but actually walking firmly with confidence into the fourth quarter.
spk06: Thank you for the color. And just maybe as a quick follow-up, one of the things we've noticed is just as we think about the broader EBITDA cadence or contribution for Hyatt across the business line, It seems like seasonality in 3Q relative to 2Q was a little bit lower than what we've seen in the past. I know there's a lot going on with sequential recovery dynamics and group and leisure. Just the different channels are off. But if we think about that pattern, is that actually the case? I mean, is the business a little bit more stable quarter to quarter as we look forward and just think about kind of how to think about these broader trends just given both the contribution from ALG and then just broader – maybe the broader portfolio, you know, around some of the changes in the owned and leased mix?
spk04: Yeah, I think the answer is that the seasonality, I think, is going to end up reflecting a change, a more fundamental change. For example, some of the volumes that we saw that were a welcome surprise from ALG Vacations filled in some gaps that they typically would have seen in years past in late September into October because of bookings that leisure sustained. And so I think that apart from ALG, which continues to post obviously very strong numbers, and the fact that we've got an expanded leisure component overall, what happened in post Labor Day group was very significant, and business transient as well. When we look at post-Labor Day September, we improved our total business transient to minus 20 compared to 2019 levels, which is a significant improvement from the minus 38 comparison in Q2 this year. So I would say that we, and there's a blurring of course, between the commercial activity in transient versus group, as well as between business travel and leisure. So I think that the, the, the typical seasonality, if you went back to like 2017 and 18 and 19 and said, what is the seasonal patterns there? I think third quarter is going to end up, um, evening out a little bit relative to those historical trends because of some of these dynamics.
spk06: Thank you very much. Sure.
spk08: Our next question comes from Joe Graff from JP Morgan. Please go ahead. Your line is open.
spk01: Good morning, everybody. Good morning. Given the momentum in growing the ALG footprint, which we obviously have seen in the last two quarters, as well as some of the things you discussed earlier, Mark, do you think that 6.5% net rooms growth rate is sustainable through 2023 based on what you know now about the pipeline?
spk04: Yes. I think the fact is that we've made a lot of modifications in terms of how we've gone to market this year. We are experiencing the expected lull in openings for select service hotels in the United States, and also the China openings have really taken a hit, primarily because of the inability to get contractors and workers onto job sites. and to get materials to job sites. So these serial lockdowns have really cost us significantly. But we're also seeing now on the other side of that some really significant improvements. And so we've opened a couple of really important hotels in China at the beginning of October. Just to give you some sense for this. Let me give you a little context. I, you know, right now I think our expectation, uh, is our, our, our belief is that we're going to open something around 10,000 rooms in the fourth quarter. And that's a, you might say, wow, that's, that's a huge amount booked into the very last quarter of the year. Half of that is Lindner hotels. And we are well along in, in, um, in finalizing all of the arrangements to close that transaction. And the other half is across the rest of the portfolio. We opened more than 3,000 rooms in October against that other 5,000 rooms. So we're seeing, even though things got delayed, and I can tell you that a lot of those 3,000 rooms that we opened in October were lagged. We expected to open them earlier. But, you know, everything is now, you've got to be ready to pivot and recognize that we've got slippage in many, many different places. So, but my point to you is that things are firming and we have actual openings to point to in the near term. And we've got other portfolio deals on which we're working, which give us great confidence that we're going to sustain this net room's growth into next year.
spk01: Great. Excellent. Thank you. Thank you.
spk08: Our next question comes from Richard Clark from Bernstein. Please go ahead. Your line is open.
spk12: Hi. Good morning. Thanks for taking my question. Just a little bit of a clarification question maybe on the NUD guidance there. So you're saying that Lintner's included. I've got Lintner at about 1.7%. So did you know about Lintner at Q2? And it's just got a little bit bigger. Maybe you can just help me understand it because otherwise it looks like You've gone backwards on NUG Guidance X, the Lindner deal.
spk04: No, we had visibility to Lindner. We had confidence that we could get it done. What we didn't know for sure is how much of the portfolio would come across in the final negotiation. We finalized that and announced it in early November in Munich. So that's when we... Do I mean that early? October is what I meant to say. I apologize. Early October. And so... Yes, we knew about Linder. No, we didn't know precisely how many hotels and rooms would come across. And the reason why we had enough confidence to embed it in our modified outlook was because this is not the first deal we've done with the Linder family. We have two now, actually, as of this coming week, three other hotels that we will have opened with them, including... A destination by Hyatt Hotel in Ibiza under the Seven Pines brand, which was rated the best resort hotel in Ibiza recently. So the performance in these hotels with respect to direct channel and with respect to world of high penetration have been phenomenal. And I spoke with the family member who leads the group yesterday. And he noted to me that the reason why we've been able to do what we did in such quick succession is because of our experience in working together before. So this is the nature of what I think – this is the shape of things to come in terms of our activity base. It's a very important network move because Germany – is the number one feeder market for the Balearic Islands and the number two feeder market for the Canary Islands, where we have significant all-inclusive resort presence. So there's an intentionality to what we're trying to do. It's not just a representation play for Germany and for Europe. It's also to extend and bring millions of additional customers
spk12: into the world of hyatt and expose them to now our our much bigger resort portfolio in europe thanks for that maybe just a follow-up on on that topic i mean how many of these portfolio deals are there are there out there are there are there other deals you could sign with groups where you bring you know many thousands of rooms on at once and Maybe getting your answer to that question might be quite optimistic. If that's the case, why are you talking about maybe doing more M&A? Why do you need to do M&A if there's these organic opportunities out there?
spk04: We've never considered it to be a trade-off. Our view, if I look back and I see the performance of what we've done for Two Roads Hospitality, for example, We are trending dramatically ahead in our total fee revenue and our total fees per key relative to our underwriting for that transaction. And we have grown the pipeline significantly since we bought that group. ALG, I think, speaks for itself. If you have any questions, I'm happy to go into detail across any dimension of ALG. And Miraval, now has three high-performing resorts, and we are signing asset-light deals to manage third-party constructed or third-party developed Miravals globally in the U.S., in the Middle East, and in Europe. And we are also working on deals in Asia. So I guess what I would tell you is if the deals that we had done historically proved to be really unsatisfactory or uh, not productive as growth platforms that this is, this is, these are brands that this is the gift that keeps on giving year after year after year, especially if you perform, um, and our concentration in lifestyle and luxury and leisure has paid off, uh, allowing us to focus. Um, I would say then we shouldn't do them, but, uh, we have, you know, it would be all evidence to the contrary, notwithstanding if that's, if that's the decision we made.
spk11: And maybe just the visibility on the portfolio deals, are there many more of those out there?
spk04: You know, the fact is I'm not going to go into any detail whatsoever because of competitive dynamic issues. You can imagine that some of those transactions are competitive in their nature. What I will say is that we, as a result of our longtime presence in a lot of markets and the addition of AMR hotels and some of the people at AMR who have decades-long relationships with families in Europe that have portfolios, we feel very, very well positioned to both understand exactly what's going on in the marketplace, and we are the largest player, the largest managed brand portfolio of luxury and inclusive resorts in the world. So we have a unique position from which to seek these kinds of transactions out.
spk00: Thanks very much. Thank you.
spk08: Our next question comes from Patrick Scholes from Truist Securities. Please go ahead. Your line is open.
spk02: Hi. Good morning, everyone. Good morning. Sorry if I missed this earlier. Give us a little bit of color about your net unit growth trend specifically for the ALG group in Europe. um and in the caribbean you know how that trended in the quarter and and um you know if any type of color or expectations that you could give on that for next year thank you yeah so we're we're up 10 year to date in terms of growth in the portfolio um we've got a number of openings uh that we did expect in 2022
spk04: When we looked at the pipeline when we first bought the company, we thought that 2023 would be lighter than 22 and then 24 and 25 would be much heavier just by virtue of the timing of the construction of assets. What I can say is that unlike some of the challenges that we have seen in the United States in getting hotels built and opened, We've not seen really those challenges in continuing the construction pace in Mexico, the Caribbean, and in Europe. So our confidence that we're going to be able to continue to maintain our momentum is relatively strong. And reminder, the answer to the prior question was about portfolio deals. Those apply not just to Hyatt, but to ALG as well. So I would say that we feel very, very good about continued growth. And our 2022 performance is at or above our going-in expectations.
spk02: Okay. Can I ask a follow-up question? Sure. I suspect I know the answer, but I'd like to hear it from you. Certainly, we've seen very strong room rate pricing growth. in the Caribbean and for all-inclusives, are you starting to see any pushback from customers on that, on those room rates? Thank you.
spk04: No, we're not. I would tell you that with respect to our bookings, Q4 pacing in the ALG portfolio is plus 30% to 2019. Q1 2023 pacing is up in the mid-teens to 2022. So year over year, it's up in the mid-teens. And the vast majority of that is rate. So we see no abatement of that. And I'll tell you that there's a fundamental human behavioral aspect that's at work here. What used to be COVID stress that was driving travel demand to a certain extent and maybe the urgency, what do they call it, revenge travel or pent-up demand, whatever you want to call it. You know, what that's turning into now is there's a nebulousness about the macro outlook. Of course, the issue isn't that people have certainty that we're going to have a problem. The problem is that there's uncertainty and people just don't know. So that sort of financial stress or concern is something that people are looking to manage. And so all-inclusive turns out to be a wonderful antidote to that because it's a one-stop shop. You pay an amount that you are certain of. You don't walk into a vacation and have no idea how much it's going to end up costing you. You know exactly what it's going to cost you. And once you get on property, you can truly relax. And we've got an ever-growing number of experiences that we provide our guests. So I believe that we're going to see a continued strengthening of demand for all-inclusive vacations during this period of time when people need respite and some renewal at a time when other things in their lives may be less certain.
spk02: That is a very true statement. through a statement at the end there. Thank you. I'm all set. Thanks.
spk08: Our next question comes from Dori Keston from Wells Fargo. Please go ahead. Your line is open.
spk07: Thanks. Good morning, everyone. Hi, Dori. Hey, Mark. What would you need to see, whether it's the economy, bookings, a booking window, to make you feel comfortable returning to providing annual EBITDA guidance?
spk04: You know, it's a great question. I think we're still learning consumer behaviors and how they're evolving. I think the third quarter is evidence of that, where the ALG vacations performance was outsized. Now, we also had some help in the EBITDA performance in the quarter because they got some rebates from air travel companies. for prior periods, but that wasn't a huge portion of their quarter. So we got a little help there, but I think just generally speaking, the volumes have been remarkably strong. And I would say that we're in learning mode. I think we believe that because we're going to be handling over 2.6 million passengers and over $3 billion of gross travel booked across that portfolio, that platform rather, it gives us amazing visibility. But what we're seeing is it doesn't give us much predictor value because consumer behaviors continue to evolve at this point. So I would say that we're seriously thinking about the question that you just asked and we've been discussing it actively. As in years past, our practice is to provide whatever guidance we are going to for the follow up for the coming year in our February call. and um we're going to be talking a lot about this topic between now and then and i hope we can provide uh some more visibility uh but it's really going to depend on our discussions and and how things evolve between now and then okay um this may be a stretch then but um but marriott just said on their call that they expect rev part to increase quarterly year over year in 23
spk07: Would you share those expectations when you just consider the headwinds and tailwinds that we know today?
spk04: Yeah, I think, let me just extract, let me take a step up or back. I think that there are several reasons to believe. So let me tell you why I believe. The first is that we're going to be lapping Omicron. We were down 25% in the first quarter of 2022 relative to 2019, and we were down 5% to 2019 in the second quarter. So we're lapping a period of much more hindered demand levels. Second, supply growth has slowed, period, end of story. And usually in a simplistic way, when demand exceeds supply, you have sustained pricing. And I do believe that demand will continue to outshine supply. Third, China has been on its back in a very volatile roller coaster over the course of the entire year. Any stability in China is a massive improvement year over year. Fourth, We have, for five going on six years, industry-leading net rooms growth. And those new rooms are producing significant increases in our fee base. And if you need a couple more to fill out that list of four, those would be my top four. First, we believe it's still too early to say one month does not a trend make, that we may have peaked out with respect to wage rate inflation. It feels like we're headed to something that is starting to feel more stable. I would describe that as part hope and part data. So check in with me in a few months and we'll talk more about that topic. Another one is that we have room to grow. We're still running occupancy that is 800 basis points lower than it was in 2019. Admittedly, a big chunk of that is driven by China. So don't want to overdo that. The final reason to believe is what I said in answer to the prior question, which is this need for stress relief fits perfectly into our strategy, which is we've got an expanded well-being offering set that we are rolling out. We just relaunched our FIND platform. If you don't know what FIND is, please go to Hyatt.com and seek it out. And it's a number of well-being practices that we make available to our world of Hyatt. guests and the benefits of all-inclusive. So those top four, though, are structural. And while there is a lot of opacity with respect to how China is going to evolve this year, let's just face it, China had a very, very, very difficult year this year. So any improvement is going to tend to make improvements. So those are a number of reasons why we believe we're heading into another strong year.
spk07: Thank you. That was very helpful.
spk08: Our next question comes from Dwayne Fenningworth from Evercore ISI. Please go ahead. Your line is open.
spk05: Hey, thanks. Nice to speak with you. Just on the dispositions or asset sales, does success on the fee front basically reduce your appetite for asset sales? And can you just speak to kind of the current tone?
spk04: of conversations yeah look um we are uh very experienced in this market um we've sold over four billion dollars of the real estate in the last five years so um to say that we've been active if not a significant player is is the end is an understatement so we track this very carefully um there are several things going on right now the first is not they're different we always look at Who's active? Where's the money and who's active? So there's an unprecedented level of equity in private equity and opportunity funds, but they're actually not in the market right now because their underwriting process includes a precise calculation about advance rates and cost of debt, which are not favorable at the moment. What you are seeing is REITs. REITs are in the market. And private REITs are somewhere in between at this point. We are constantly evaluating where the demand for new properties is going to be and how robust that demand looks like and how that trades off. We've been extraordinarily disciplined about what we sell for what price. We have outperformed our own expectations and dramatically outperformed any sum of the parts valuations that we've seen in analyst reports. So as far as I'm concerned, we don't even need to discuss this any longer. We've got so much evidence that we have a very valuable real estate portfolio. And the value of the remaining portfolio that we've got is at least as high, meaning at least as strong in terms of the quality of the assets. I'm not saying it's equally large. as the portfolio that we've already sold. So what do we see? We see that the deal market's not dead. We see that there's a very significant bias towards resorts and luxury at this moment in time. What we also see is remarkable booking strength and pay strength into future periods. So in many ways, you know, we feel like if we end up hitting a relatively drier period with respect to deal activity and really being able to realize excellent values and securing excellent long-term contracts, we're getting paid very well to wait. So we've already exceeded 70% of our total mix in fees relative to owned assets. If you include ALG vacations in that mix, it's even higher. But I think the fact is that, which is inherently an asset-like platform, but the fact is that we're getting paid very, very well. Our own portfolio on a FX-adjusted and net transactions-adjusted basis, EBITDA was 40% higher in the third quarter of 2022 versus 2019, 40%. So our work, to operate efficiently and effectively and drive margin expansion of over 700 basis points means that we've got, in one hand, fantastic returns and great cash flow, and in the other hand, possible and opportunistic sale activity, disposition activity. I do believe that most of these conditions are short-term in nature. And that by the second half of next year, you're going to see a lot more fluidity in the marketplace. And we have zero concern, none whatsoever, about meeting our $2 billion net sell down by the end of 24. So that's how I would describe it to you.
spk05: Thank you for that very comprehensive answer.
spk03: Julianne, we'll take our last question, please.
spk08: Thank you. Our last question comes from Smitty Rose from Citi. Please go ahead. Your line is open.
spk10: Hi, thank you. I just wanted to ask you a little bit about the vacation club membership sales. You mentioned they were up over 30% versus the third quarter of 19 to over 9,000 contracts. Is that a function of more sort of venues that are selling the contracts? I'm just trying to think about how we should sort of think about growth in that contract line going forward because it's certainly higher than what we were forecasting.
spk09: I mean, this is... This is a great result coming from the sales of the Unlimited Vacation Club contracts. And what we've seen through the network effect of ALG is that with the net rooms growth that we've experienced in the portfolio, that provides more opportunities to sell the contracts. We've done some work on the program itself and creating different tiers. And we found that some of the higher tiers are also very popular with new members. So, you know, and incorporating World of Hyatt into the AMR portfolio and working to actually integrate the World of Hyatt benefits with the UBC benefits has also proven to strengthen and provide more benefits for the UBC program. So all of these things are helping to fuel greater interest in the Unlimited Vacation Club, and we're also just I also want to point out that we're seeing a lot of durability with respect to those contracts that we're signing. Our rates of any type of uncollectibility are extremely low. So I'd like to just point out again the disclosure that we provided in the earnings release, which I think we will find useful to just give some more context between the drivers of cash in the net deferrals and net finance contracts. that is helping to explain what's behind those two items that we're including in our economic value results for ALG. So hopefully that explains the drivers behind the growth and also further gives some context into those numbers on the earnings release that we provided this morning.
spk00: Great. Thank you. I appreciate it.
spk08: And this will conclude today's conference call. Thank you for participating and have a wonderful day. You may now disconnect.
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