Hyatt Hotels Corp

Good morning and welcome to the Hyatt Third Quarter 2023 Earnings Call. All participants are in a listen-only mode. After the speaker's remarks, we will have a question and answer session. To ask a question, you'll need to press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Adam Roman, Senior Vice President of Investor Relations and FP&A. Thank you. Please go ahead.

Thank you and welcome to Hyatt's third quarter 2023 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 start, I would like to remind everyone that our comments today will include forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K, quarterly reports on Form 10-Q, and other SEC filings. These risks could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued 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 the call will be available on our website for 90 days. Please note that unless otherwise stated, references to our occupancy, average daily rate, and REVPAR reflect comparable system-wide hotels on a constant currency basis. Additionally, Percentage changes disclosed during the call are on a year-over-year basis unless otherwise noted. With that, I will turn the call over to Mark. Thanks, Adam.

Good morning, everyone, and thank you for joining us. First and foremost, I'd like to take a moment to acknowledge the recent global tragedies that have deeply affected communities around the world, including the August wildfires in Maui, September earthquake in Morocco, and October hurricane in Acapulco, Mexico. We've made donations to nonprofits on the ground, and our Hyatt family has come together to help our impacted colleagues through our Hyatt Care Fund. Additionally, the world is witnessing catastrophic events in Israel and Gaza. While we do not have hotels in the affected region, the Hyatt Hotels Foundation has donated to the International Committee of the Red Cross to support the relief efforts and help those in Israel, Gaza, and the impacted region. Our hearts go out to everyone affected by these events, as well as those impacted by the ongoing war in Ukraine. It is in times like these that our purpose to care for people so they can be their best increases in significance. Turning to our results, we reported our third quarter 2023 earnings this morning, including another quarter of record fees for Hyatt. The transformation of our business model and expansion of our asset-light earnings mix is leading to record fee contribution and greater conversion of earnings into free cash flow. Demand for travel remains strong and was something I personally witnessed during a trip to Asia this past August, my first visit to the region since 2019. Visiting key markets like Shanghai, Suzhou, Hong Kong, and Tokyo proved insightful and inspiring as I was able to connect with many of our colleagues owners, partners, and guests. There's a clear uptick in travel demand in Asia, and this momentum, combined with the continued growth and excellence of our food and beverage operations in the region, are leading to strong margins for owners and fees for Hyatt. In fact, performance around the world remains strong, and I'm pleased to share that RevPar increased 8.9% in the quarter, as occupancy grew 420 basis points along with a 2.6% increase in average daily rates. We continue to see occupancy levels recover and the month of September underscores this positive momentum with occupancy down only 260 basis points compared to 2019. Demand for all customer segments remains solid. Leisure transient revenue increased 4% over an exceptionally strong third quarter last year as consumers continue to prioritize travel and experiences. Leisure travel remains at elevated levels, 22% above the third quarter of 2019, including a 30% increase over 2019 in the month of September. Moving to business transient, revenue increased 19% and has recovered to approximately 90% compared to the third quarter of 2019. Although most of our corporate negotiated accounts are on a dynamic pricing model, We are about halfway through discussions for our fixed rate accounts and expect rates to increase in the high single digit range in 2024 compared to 2023. Lastly, group room revenue increased 10% compared to 2022 and was up 5% compared to 2019. Growth in group revenue accelerated during the quarter and finished up 13% in September compared to 2022. We had another excellent quarter of group production for America's full-service managed properties, booking approximately $450 million of business for all periods, a 17% increase. Looking ahead, group pace for the America's full-service managed properties is up 7% for the fourth quarter and 8% for the full year of 2024 compared to 2023. Turning to World of Hyatt, our loyalty program continues to see impressive growth, adding nearly 8 million new members in the past 12 months. This represents a nearly 24% increase, bringing total membership to over 42 million. Additionally, room night penetration increased nearly 100 basis points during the first nine months of 2023, compared to the same period in 2022 for legacy Hyatt properties. Enrollments at our ALG properties remain strong, and in October we passed 1 million loyalty members enrolled on property since the launch last year. And soon, members can look forward to World of Hyatt benefits extending to the Mr. and Mrs. Smith platform that we acquired in June. Separately, we're excited about the introduction of Homes and Hideaways by World of Hyatt, our new residential vacation platform. allowing members to enjoy private homes and remote hideaways ranging from beachfront locations to mountainside ski chalets. Overall, we've expanded our portfolio of properties by 70% over the past six years, which has enabled a 300% increase in the World of Hyatt Loyalty Program members. Adding value to our members' experience with Hyatt is a key driver of our growth strategy. We expect to maintain industry-leading growth into the future, enabled by an 8% increase in our pipeline, reaching a new record of 123,000 rooms, representing approximately 40% of our current portfolio. Developer interest in our brands remains extremely strong, and the engagement around our new Hyde Studios brand will support continued growth in our pipeline in the fourth quarter and for years to come. We achieved 6.2% net rooms growth and expanded our select service footprint in both the Americas and Asia Pacific regions. With respect to Yurkov, we opened seven properties during the quarter, which brings our total open portfolio to 30 properties, and we're very excited that we have reached 100 properties, including our signed pipeline. Notably, in September, we opened Andaz Macal, the world's largest Andaz-branded property with 715 rooms. We expect a very busy fourth quarter of opening activity. As we have said at this time every year, we fully recognize that there are always timing issues that can impact the exact opening dates, but the momentum of our growth remains steadfast. We believe that we will continue to realize industry-leading growth in the future because of our robust expansion of our pipeline and our proven success in converting existing hotels to our brands. I'd like to make a few comments regarding the ALG businesses and the related segment results. Since acquiring ALG two years ago, we've realized remarkable growth in the business. First, the portfolio has expanded by 12% and the pipeline has grown by 11%. This growth is particularly impressive considering it was achieved during post-pandemic recovery and a challenging financing environment. Second, since our acquisition, Unlimited Vacation Club memberships have grown by 19%, reaching 140,000 members as of the third quarter. Third, ALG Vacations Adjusted EBITDA has increased tenfold since 2019 as a result of changes in market segmentation and through operating leverage driven by significant investments we have made in automation and digital tools. And while the business has shown impressive growth and record results to date, we see many opportunities to expand at an even faster pace over the coming years. Looking forward, we see tremendously strong demand. Looking pace for our ALG Luxury All-Inclusive Resorts in Cancun for the festive period is up 8%. And for the first quarter of 2024 is up 12%. In the very short term, over the past two quarters, we experienced challenging year-over-year comparisons as expected and as described earlier this year. By way of reminder, this had to do with the post-Omicron compression of demand and bookings over the second and third quarters of 2022. And these year-over-year comparison issues are temporary. It's important to bear in mind the unusually high demand Cancun experienced in the third quarter of last year compared to this year's return to more regular seasonal patterns. To put the magnitude of last year's unusual demand into context, adjusted EBITDA for the ALG segment in the third quarter of 2022 was nearly equal to that of the first quarter of 2023. This is highly unusual as the first quarter is the peak travel season for the majority of ALG destinations. Despite tempered demand in the overall Cancun market this quarter, net package revpar for our ALG properties still increased 1% compared to last year, an extraordinary result given the post-Omicron effect last year. We also gained substantial market share relative to competitors, a testament to the power of ALG's vertically integrated platform. We're very optimistic about the outlook for ALG going forward based on the forward-looking PACE data, And these positive trends are a testament to the strength of our ALG team and the durability of leisure demand. ALG continues to perform significantly ahead of our underwriting expectations and has accelerated our asset light earnings mix. Based on the latest full year 2023 forecast, we expect to end this year with an implied multiple of just over 7.5 times our acquisition price. And that is not the end of the story. With the growth in our system, and continued expansion of our capabilities, the effect of multiple will continue to decline over the coming years. Before I conclude, we have updates on several transactions. In September, we announced the sale of our vacation residential management business called Destination Residential Management to an affiliate of Logue. We are thrilled to work with a company that has expertise in this area. And as a part of this transaction and through our Homes and Hideaways platform, Our World of Hyatt members will continue to enjoy the benefits of these properties and these destinations. Turning to asset sales, with respect to the two properties we've been updating you on throughout the year, we've made significant progress. For the first asset that we previously disclosed as being under a letter of intent, we have now signed a definitive purchase and sale agreement. This transaction is expected to close in the fourth quarter. For the second asset that we previously disclosed as being marketed for sale, we now have a signed letter of intent. Assuming this results in the property being sold, the transaction should close in the first half of 2024. The completed sale of these two assets would bring our gross proceeds from asset sales net of acquisitions to approximately two-thirds of our $2 billion commitment. The activity level has increased around other asset sales. we have a letter of intent signed for one additional asset with this transaction expected to close in the first half of 2024. While this is a relatively small transaction, the disposition would reduce near term capex spending. We have also launched the marketing process for an additional asset and separately we are advancing discussions for off market transactions relating to other properties in our portfolio. As a reminder, We have realized $721 million of proceeds from the net disposition of real estate as of the end of the third quarter of 2023. We remain highly confident that we will reach our disposition commitment by the end of 2024 while realizing attractive valuations and securing durable long-term management or franchise agreements. In closing, I'm very pleased with another quarter of record results, and I want to emphasize my confidence in the long-term outlook of our business going forward underscored by a few important points. First, our core management and franchise business is firing on all cylinders, and we feel great about the future. Specifically, demand for travel remains strong, particularly among leisure and group customers, resulting in another quarter of record fees. Greater China's recovery has been remarkable, and we expect this will be a continued tailwind for our management fees, net rooms growth, and pipeline expansions. we're excited about the prospects for ALG's festive and high season and expect another strong year in 2024 for that business. Second, our owned and leased earnings, despite tough year-over-year comparisons, are very strong. Comparable margins were 500 basis points higher compared to the third quarter of 2019, and we are confident that as we exit this year, we will be able to continue to deliver margin growth. Third, we've made great progress on asset sales, and have strong momentum towards meeting our $2 billion commitment by the end of 2024 at the latest. Fourth, our future growth, driven by our record pipeline and new openings, is very promising. Even with certain financing challenges, primarily in the US, our best in class brands continue to attract owners for both new build and conversion opportunities, underscoring our unique positioning. We remain highly confident in our ability to achieve the long-term growth outlook that we provided at our investor day this past May. I want to extend my gratitude to the entire Hyatt family. Your unwavering commitment and dedication in executing our strategy has positioned Hyatt as the preferred brand for colleagues, guests, customers, and owners. Joan will now provide more details on our operating results. Joan, over to you.