Hyatt Hotels Corp

star followed by the number one on your telephone keypad. To withdraw your question, please press star one again. Thank you. 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 second quarter 2024 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 be materially different from those expressed in or implied by our comments. Forward-looking statements in the earning release Earnings released 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. Please note that unless otherwise stated, references to our occupancy, average daily rate, and REF PAR 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. Thank you, Adam. Good morning, everyone, and thank you for joining us today. I want to start by sharing my appreciation for our colleagues around the world who live our purpose every day to care for our guests, our colleagues, owners, and each other. I've been very fortunate to visit with many of you over the last quarter, and I'm continually inspired by the power of care and what differentiates Hyatt from others, our people. Our purpose and execution of our strategy are evident in our operating results, which reflect record levels of fees, role of Hyatt members, and rooms in our pipelines. This morning, we reported system-wide rep part growth of 4.7%, and as anticipated, group and business transient were our strongest customer segments in the quarter. Easter taking place in the first quarter of 2024 was a tailwind for group and business travel in April, and a headwind for leisure travel. Leisure transient revenue decreased approximately 2% in the quarter, but was up 2% when excluding the impact of Easter, significant renovations at several key U.S. resorts, and our hotels in Maui, which were negatively impacted by the wildfires in Q3 of last year. Through the first six months of 2024, leisure transient revenue was up 2% compared to 2023, despite these temporary headwinds, and we remain significantly above pre-pandemic levels. Looking ahead, transient pays for resorts in the Americas is flat in the third quarter, excluding resorts under significant renovation, while pace for all-inclusive resorts is down slightly as demand in Mexico and the Caribbean reflects a return to pre-pandemic seasonality. Group room revenue increased approximately 8% in the quarter, with strong results in most U.S. major urban markets during the months of May and June. Group PACE for U.S. full-service managed properties is up 7% for the second half of 2024, and we anticipate higher growth rates in the third quarter compared to the fourth quarter. This is due to Rosh Hashanah and Yom Kippur falling in October this year compared to September of last year and the U.S. elections in November. Looking beyond 2024, PACE continues to be very strong across all group customer segments. Our business transient customer segment had the largest growth rate during the quarter, with revenue up approximately 14%. In the United States, revenue increased 12%, and New York, Seattle, San Diego, and Washington, D.C. were the top performing markets. Bookings for business travel over the next two months looked very strong, led by corporate negotiated accounts. While there are signs of slowing demand in lower chain scales, we saw strength among the high-end consumer, As luxury rev par increased 6.9%, driven by hotels in Europe and Asia Pacific, excluding China. The solid quarter of group and business travel was reflected in our upper upscale brands, which produced rev par growth of 4.2%. Our solid operating performance reflects the strength of our growing loyalty program. World of Hype membership reached a new record of approximately 48 million members at quarter end, a 21% increase over the past year. Loyalty room night penetration also increased, highlighting the strong engagement of our expanding membership base. Our growth strategy and expansion into many new markets, in addition to delivering authentic and personalized experiences, has led to member growth and increased loyalty penetration. Our expansion, of course, includes Mr. and Mrs. Smith, which realized significant engagement from our members after we added over 700 properties to World of Hyatt in April. 80% of these properties have received bookings from World of Hyatt members since going live, with nearly two-thirds of those bookings for paid reservations as opposed to the redemption of points. Our most active members, our globalists, have been very engaged with Mr. and Mrs. Smith, accounting for over 20% of these bookings. By the end of this year, we expect to have over 1,000 Mr. and Mrs. Smith properties available through World of Hyatt, offering our members even more opportunities to earn and redeem points in these uniquely curated hotels. We also recently announced an exclusive alliance with Under Canvas, where we are an experiential outdoor hospitality with 13 locations and premier destinations such as the Grand Canyon, Moab, Yellowstone, and Zion. World of Hype members will be able to earn and redeem points at Under Canvas locations further expanding our offerings and adding unique experiences for our members and guests. We have already seen great interest from World of Hyatt members, with 60% of total bookings made at Under Canvas locations being for paid reservations since the partnership went live nearly two weeks ago. A few months ago, I visited the Under Canvas Uloom Resort in Moab, named the best resort hotel in Utah by Travel and Leisure. And I loved my overnight stay at the undercanvas North Yellowstone Paradise Valley in Montana. Both destinations offer exceptional quality and immersive activities, which I'm really excited for our World of Hyatt members to experience firsthand. We're also proud of the recognition that World of Hyatt continues to receive. WalletHub recognized World of Hyatt as the best hotel rewards program and World of Hyatt credit card as the best overall hotel credit card. The continued recognition of World of Hyatt is a testament to the value that our loyalty program provides to members and hotel owners. Our focus on expanding our network effect as we grow allows us to offer more options to our members, increasing their loyalty to Hyatt and making Hyatt more attractive to prospective developers. Turning to development, we continue to see strong demand for our brands as our pipeline reached a record of approximately 130,000 rooms. This represents a 9% increase year over year and our pipeline accounts for 40% of our existing room base. Signings in the quarter were healthy across the world, led by the United States and Greater China, and we continue to see increasing interest in Height Studios with the first two properties under construction. Our growth pipeline continues to drive expansion of our portfolio worldwide. And in the quarter, we achieved net rooms growth of 4.6%. Notable openings include the Park High Changsha, the 10th Park Hyatt in Greater China, and the Hyatt Vivid Grand Island in Cancun, our first Hyatt Vivid all-inclusive property. The Hyatt Vivid brand introduces the younger generation to a vibrant, adult-only, all-inclusive experience with a focus on meaningful connections through experiential offerings. We opened our first captioned-by-Hyatt properties outside of the U.S. in Shanghai and Osaka. Finally, the legend resort Paracas opened in the quarter a stunning resort on Peru's southern coast and our first destination by high property in Peru. Our openings this quarter strengthened the equity of our brands and opened new markets for our guests and members. And we're confident that our pipeline will continue to fuel growth well into the future. The pipeline will continue to expand as we strategically enhance our brand portfolio. On June 28th, we announced the acquisition of the Me and All Hotels brand from Lindner Hotels Group. allowing us to accelerate growth of the brand. We're really excited about the growth trajectory and great potential for me and all hotels over the decades to come for three key reasons. First, me and all hotels is a highly attractive lifestyle brand in the fast-growing upscale segment in Europe. The brand is well-suited for adaptive reuse and conversions, facilitating growth in great locations to fill significant white space that Hyatt has across Europe. Second, mean-all hotels deliver high margins, allowing developers to realize attractive returns that are required for lease structures, which are common in Europe. This lease-friendly brand enhances operational flexibility and greatly expands our access to capital sources across Europe. And third, it is important to note that our strategic positioning and brand mapping are designed to aggressively expand and capture market share across Europe. While we expect the brand to gain scale in Europe initially, we believe there are opportunities to grow the brand globally, providing more destinations for our members and guests to enjoy a curated lifestyle experience. We have been and will continue to be very intentional with our organic and inorganic growth, ensuring that our brand and property portfolio expansion creates opportunities for new guests to find us and join World of Hyatt while providing existing members and guests new and exciting places to enjoy great experiences. Turning to asset sales, we completed the sales of Park Hyatt Zurich, Hyatt Regency San Antonio, and Hyatt Regency Green Bay during the second quarter, as previously announced. With these sales, we have realized $1.5 billion in gross proceeds from asset sales towards our $2 billion commitment. We expect to close the sale of the property that is currently under a purchase and sale agreement by the end of August, which will put us above our $2 billion disposition commitment. We will provide more details on that transaction when the deal closes. Before I conclude my remarks, I'm pleased to report that we recently published our annual World of Care Highlights, demonstrating progress towards our Change Starts Here goals and environmental sustainability goals, including our science-based targets. While we have more work ahead of us, I am exceptionally proud of the progress that we've made, led by our hired colleagues worldwide. In closing, We are pleased with the execution of our long-term strategy, which we highlighted at our investor day last year, maximizing our core business, integrating new growth platforms, and optimizing capital and resource deployment. Our growth across multiple dimensions, including rooms, fees, pipeline, and loyalty membership fuels our asset-light business model, leading to strong free cash flow and greater value for our shareholders. I want to thank high colleagues around the world who live our purpose every day to care for people so they can be their best, which extends to each of our stakeholders. Joan will now provide more details on our operating results. Joan, over to you.

Thanks, Mark, and good morning, everyone. System-wide RESPAR increased 4.7% led by increased business and group travel. In the United States, RESPAR increased over 2%. reflecting the timing of Easter and strong results from group and business transient travel. Large corporate accounts contributed to both group and business transient travel, benefiting hotels and major urban markets. As Mark noted, we are lapping challenging comparisons in Maui due to the wildfires in the third quarter last year, and we have several resorts undergoing exciting transformational renovations. The confidant is being rebranded as Andaz Miami Beach, while Hyatt Regency Scottsdale and Hyatt Regency Indian Wells will be rebranded under the Grand Hyatt brand later this year after extensive renovations. RESPAR growth in the Americas, excluding the United States, increased approximately 9%, with notable strength in Canada and South America, while our all-inclusive properties in the Americas had net package RESPAR growth of 2% for the quarter. In Greater China, RevPAR decreased by approximately 3%. As a reminder, the second quarter of last year saw a dramatic recovery for domestic travel, and RevPAR surpassed pre-pandemic levels for the first time. We expected growth rates to normalize starting in the second quarter this year. However, unfavorable macro conditions and greater outbound Chinese travel negatively impacted results in the quarter. Domestic travel was down 9% in the quarter compared to last year, with a notable impact on hotels and secondary and tertiary markets. While we saw positive REVPAR growth in most major markets, this could not offset weaker demand in secondary and tertiary markets. Despite these pressures, we increased our REVPAR index by approximately 3% during the quarter, which is a testament to our strong brand recognition in China. Although domestic travel declined, we're seeing demand for travel from affluent customers increase. However, they are prioritizing international travel, and we expect outbound travel from China to remain at elevated levels in the near term. Asia Pacific, excluding Greater China, once again produced remarkable results, with RESPAR up approximately 18% due to strong international inbound travel with notable demand coming from Greater China and the United States. RevPAR in Japan increased 35% and RevPAR in South Korea increased 20%. In Europe, RevPAR increased approximately 11% driven by outbound travel from the United States with notable strength in Germany and Spain. Our European all-inclusive properties produced impressive net package RevPAR growth of approximately 12% driven by high demand for our resorts in the Balearic and Canary Islands. We reported record growth fees in the quarter of $275 million, up 12%, due to a combination of our REVPAR growth, greater system size, and an increase in our non-REVPAR fees. Franchise and other fees increased 32% due to the growth of our franchise footprint, the growth in our co-branded credit card fees, and the contribution from UVC fees. Base fees increased 4%, reflecting the combination of increased managed REVPAR and fees from newly opened managed hotels offset by hotels in Greater China. Incentive fees decreased approximately 7% due to lower contribution from hotels in Greater China, hotels under renovation, and hotels in Maui. Turning to our segment results, management and franchising segment adjusted EBITDA increased approximately 11% driven by the increase in our gross fees. Owned and lease segment adjusted EBITDA increased by 9% when adjusted for the net impact of transactions. Business transient revenue for the portfolio increased by double digits during the quarter, and the contribution from group and related food and beverage revenue was strong. In the quarter, margins for comparable hotels increased 110 basis points. We expect that we'll achieve flat to moderate expansion of owned and leased margins for the full year compared to 2023. And finally, for distribution segments, adjusted EBITDA increased $9 million compared to the second quarter of 2023. Excluding UBC, adjusted EBITDA declined by approximately $5 million, consistent with the expectations we communicated during our first quarter earnings call. We expect third quarter adjusted EBITDA for ALG vacations to decline approximately $5 million to last year due to a combination of cancellations related to Hurricane Beryl and weaker bookings over the last few weeks due to the temporary system disruptions impact on airline bookings. However, we anticipate fourth quarter adjusted EBITDA for ALG vacations to grow by approximately $10 million compared to last year because of improved airlift. I'd like to now provide an update on our strong cash and liquidity position. As of June 30, 2024, our total liquidity of approximately $3.5 billion included $2 billion of cash, cash equivalents in short-term investments, and approximately $1.5 billion in borrowing capacity on our revolving credit facility. At the end of the quarter, our total debt outstanding was approximately $3.9 billion. The increased levels of debt and short-term investments this quarter result from the notes we issued in June. We invested the proceeds from these notes in marketable securities and are planning to fully repay our notes maturing on October 1st, 2024, at or prior to maturity. In the second quarter, we repurchased $134 million of Class A common shares and we have approximately $1.6 billion remaining under our share repurchase authorization. We remain committed to our investment grade profile and our balance sheet is strong. Before I turn to our 2024 outlook, I'd like to note a change that we made to our financial reporting. We've added a new financial line item to the income statement called transaction and integration costs, which includes integration costs for recently acquired businesses and transaction costs for certain pending and completed transactions. We now exclude transactions and integration costs from adjusted EBITDA, as we believe this better represents our core operations and provides information consistent with how our management evaluates operating performance. Now, I will cover our outlook for 2024. The full details can be found on page three of our earnings release. We expect full-year system-wide REVPAR growth between 3 and 4% compared to 2023, and expect group and business transient revenue growth to outpace leisure transient for the second half of the year. We anticipate United States REVPAR growth for the full year of approximately 2% compared to 2023, led by group and business travel in the third quarter. Our outlook assumes RevPAR growth in Greater China is negative for the last two quarters of this year compared to last year as domestic travel lapsed tougher comparisons to 2023 and outbound international travel increases. Finally, we expect RevPAR growth in other international markets to exceed the high end of our range, led by Europe and Asia Pacific, excluding Greater China. We expect net rooms growth between 5.5 and 6% driven by organic growth, conversions, and potential portfolio transactions that may close by year end. Growth fees are expected to be in the range of $1.085 to $1.115 billion, a 13% increase at the midpoint of our range compared to last year. Our revised outlook accounts for lower incentive fee contribution in the second quarter from hotels in greater China, weaker than expected demand in Maui, and hotels under renovation. Our outlook also assumes lower fee contribution from hotels in greater China during the second half of 2024, and a lower fee contribution from hotels in the United States during the fourth quarter. Adjusted G&A is expected to be in the range of $425 to $435 million. Adjusted EBITDA is expected to be in the range of $1.135 to $1.175 billion, a 10% increase at the midpoint of our range compared to last year. Our outlook accounts for the removal of about $10 million of integration costs related to the change to adjusted EBITDA I just mentioned and reflects the reduction that we have made to our RESPAR range and gross fees. Free cash flow is expected to range from $560 to $610 million. And finally, we expect capital returns to shareholders in the range of $800 to $850 million, including share repurchases and dividends. In closing, our second quarter results highlight the strength of our asset light business model and our mix of asset light earnings will increase further as we complete our asset disposition program and realize our net room's growth expectations. We remain committed to our capital allocation strategy, which has delivered and will continue to deliver exceptional shareholder value by investing in growth, maintaining an investment grade profile, and returning capital to shareholders. This concludes our prepared remarks, and we're now happy to answer your questions.