Hyatt Hotels Corp

Good morning and welcome to the Hyatt fourth quarter and full year 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 fourth quarter and full year 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 on 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 issue 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. 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'll now turn the call over to Mark. Thanks, Adam.

Good morning, everyone, and thank you for joining Hyatt's fourth quarter and full year 2023 earnings call. Before we begin, I want to express our appreciation for your patience and understanding regarding the delay in our full earnings release and conference calls. While we released several metrics on February 14th that highlight our strong performance, I want to note the fourth quarter marks the completion of an exceptional year highlighted by several accomplishments, including the highest free cash flow in the company's history, a record pipeline, and the fastest growing loyalty program in the industry. Now let's turn to our commercial trends. Demand for all customer segments remains very healthy. Leisure transient revenue increased 6% in the fourth quarter, lapping a strong quarter in 2022. As we entered high season for most resort markets in the Americas, revenue for the month of December was 21% higher than the same month in 2019. Looking at the first quarter of 2024, leisure transient pace in the Americas for resort hotels is up 1%, reflecting lower demand in Maui due to last year's wildfires. When considering that 2023 actual results increased 22% compared to 2019, we're pleased to see demand for leisure travel remains elevated, even with the headwind from Maui. Additionally, PACE for our ALG all-inclusive properties in the Americas is up 11% to the first quarter of 2023. Group room revenue experienced impressive growth during the fourth quarter up 11% compared to 2022. The Hyatt Salesforce delivered another excellent quarter of group production, booking approximately $500 million of business for all future periods for our America's full-service managed hotels, a 32% increase compared to 2022. We set a record for total group production in 2023, booking nearly $2 billion of business for all future periods, reflecting very strong demand for gatherings at our hotels. We anticipate another solid year of demand for group meetings and events with group pace for America's full service managed properties currently up 8% compared to 2023. Finally, business transient revenue continues to gain momentum up 14% from the fourth quarter of 2022 and reaching 93% of 2019 levels on a global basis. As we've discussed previously, Business Transient has fully recovered to 2019 levels in many parts of the world, while the United States continues to improve. Looking ahead, we remain confident that Business Transient will continue to recover with 2024 corporate negotiated rates in the United States up in the high single digits compared to 2023. Turning to our loyalty program, World of Hyatt membership grew approximately 22% compared to 2022, reaching a new high of nearly 44 million members. We also achieved record levels of spending within our co-branded credit card portfolio in 2023. World of Hyde program benefits are clearly differentiated from any other program in the industry, and most importantly, are deeply valued by our members. While many other loyalty programs have taken steps to reduce member benefits, World of Hyde is doing the opposite. We are redefining loyalty by adding more experiences, milestones, and opportunities for members to share benefits with loved ones through our expanded Guest of Honor benefit. During the quarter, World of High received several accolades, including Best Website and Mobile App from J.D. Power and Best Loyalty Program and Best Hotel Elite Status from The Points Guy. The growth of our loyalty program, in turn, drives higher room-night penetration making our brands even more attractive to owners, which allows us to grow our footprint and pipeline. Our world-class global development team had the best year in our history, signing the most rooms ever in a single year. Our record pipeline of 127,000 rooms grew 9% compared to 2022 and represents approximately 40% of our existing rooms. The momentum around Hyde Studios, our new upper mid-scale extended stay brand, has significantly exceeded our expectations. We have approximately 200 deals in various stages of negotiation, including 17 fully executed franchise agreements as of the year end 2023. The first Hyde Studios hotel broke ground in November and is expected to open in early 2025. We also announced the strategic cooperation agreement with the Hangzhou Trade and Tourism Group and the Dragon Group to develop more than 60 hotels in China over the coming years under our select service and independent collection brands. We added nearly 10,000 rooms to our portfolio during the fourth quarter, including the 2,500-room Rio Hotel and Casino in Las Vegas, which is undergoing a transformative renovation, and we expect it will contribute significant franchise fees. Our inclusive collection portfolio also continues to attract new owners who benefit from our powerful operational and commercial delivery capabilities. For example, we converted two hotels with nearly 2,000 rooms in total in the Dominican Republic in the fourth quarter, further expanding our high inclusive collection portfolio in the Americas. In China, we entered into a strategic alliance with Mumian Hotels that includes six hotels joining our brand portfolio in the fourth quarter. We continue to focus our attention on growth that creates greater network effect by providing our guests and customers with offerings in new markets and across more price points. This drives our loyalty membership and is compelling for prospective hotel developers and owners as we continue to lower our overall distribution costs. This benefits our shareholders because of our commitment to increasing fees per room and not just increasing our room count, as this is the key driver of high-quality earnings. We have several updates to share on asset sales, but first, I would like to start with the Unlimited Vacation Club transaction that was included in the earnings release posted this morning. On February 14th, we completed a transaction to sell 80% of our unlimited vacation club business to an investor unaffiliated with Hyatt for $80 million. We've been working on this transaction for more than six months, and we are very pleased to continue to manage UBC under a long-term management agreement. This will ensure a seamless transition for colleagues, UBC members,