Hyatt Hotels Corp

Good morning and welcome to the Hyatt Third Quarter 2025 Earnings Conference Call. 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. So if there are any questions, please press star one again. 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 Global FP&A. Thank you. Please go ahead.

Thank you, and welcome to Hyatt's third quarter 2025 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 10Q, 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 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 in under the financials section of our investor relations website and in this morning's earnings release. An archive of this call will be available on our website for 90 days. Additionally, we posted an investor presentation containing supplemental information on our investor relations website this morning. Please note that unless stated, references to occupancy, average daily rate, and REVPAR reflect comparable system-wide hotels on a constant currency basis. 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. Thank you, Adam. Good morning, everyone, and thank you for joining us today. I'd like to begin today's call by expressing my deep appreciation for our hired colleagues around the world, especially those recently impacted by Hurricane Melissa. Our thoughts are with them and their families, and we're hopeful for their continued safety and well-being. I want to thank the many colleagues who have stepped in to provide care and support, including financial assistance through the Hyde Care Fund. This care and compassion from the members of the Hyde family reflects the very best of who we are. Over the past couple of months, I've had the opportunity to visit teams across both Europe and Asia Pacific. I came away deeply inspired by how our colleagues around the world embrace our evolution to a more insight-led and brand-focused organization. and continue to bring Hyde's purpose to care for people so they can be their best to life. Turning to the quarter, I'd like to provide an update on our transactions activity, starting with the sale of the hotels acquired as a part of our acquisition of Playa Hotels and Resorts. On September 18th, we sold the property in Playa del Carmen to a third party buyer for approximately $22 million. and net proceeds were used to repay a portion of the delayed draw term loan. This was one of two properties that were not subject to long-term management agreements with Tortuga Resorts. We remain on track to close the real estate transaction with Tortuga for the remaining 14 hotels by the end of the year. We also continue to make progress to sell several of our owned properties. We have three hotels under contract with signed purchase and sale agreements, and three more hotels with a signed letter of intent. We expect all six hotels to close in the early part of 2026. We will share additional updates as these transactions progress, and we remain on track to exceed 90% asset late earnings mix in the near term. Now turning to operating results, this morning we reported system-wide rev par growth of 0.3% for the quarter, which was impacted by a holiday shift and lapping with one-time events last year. Our luxury brands continue to generate the highest REVPAR growth, consistent with trends that we've seen since the beginning of the year. Leisure transient REVPAR increased 1.6% to last year and was up approximately 6% across our luxury brands. Our all-inclusive portfolio continued to deliver strong results, with net package REVPAR up 7.6%. compared to the third quarter of 2024, demonstrating the strength of luxury all-inclusive travel. Business transient RevPAR was flat in the quarter, but we saw improved performance in the United States, which grew by 3% compared to last year, the select service delivering positive quarterly growth for the first time in 2025. Group RevPAR declined 4.9%, in line with our expectations, which assumed difficult year-over-year comparisons, including the Olympics in Paris and the Democratic National Convention in Chicago, and the shift of Rosh Hashanah into the third quarter of 2025 compared to the fourth quarter of 2024. Group pace for the fourth quarter is up approximately 3% as we lap easier comparisons due to the holiday timing and last year's elections in the United States. While we are still in the planning stages for 2026, We are encouraged by the forward-looking booking trends. Group pays for full service US hotels remains up in the high single digits and is expected to benefit for special events like the World Cup and America 250 celebrations. Corporate negotiated rate discussions are ongoing and we expect average rates to increase in the low to mid single digit range in 2026 compared to 2025. Pays for our all-inclusive resorts in the Americas excluding Jamaica is up over 10% in the first quarter, reflecting the continued prioritization of leisure travel. We look forward to providing more details on our 2026 expectations during our fourth quarter earnings call. Turning to growth, we achieved net rims growth of over 12% during the quarter, or 7% when excluding acquisitions. Notable openings included the stunning Park Hyatt Kuala Lumpur, located in the tallest skyscraper in Asia Pacific, along with the Park Hyatt Johannesburg. In the United States, we welcomed Hyatt Regency Times Square to our system, following an expansive multi-million dollar transformation, marking the first Hyatt Regency property in Manhattan and our 30th property in New York City. We ended the quarter with a strong development pipeline of approximately 141,000 rooms, an increase of more than 4% to last year. Momentum across our essentials portfolio continues to build following the introduction of the Hyatt Select and Unscripted by Hyatt brands earlier this year. We signed a number of new deals for each brand during the quarter and have many more in discussion. In addition, we signed a master franchise agreement with Homins Hotel Group to develop Hyatt Studios across China, further expanding our upper mid-scale brand presence in China. Under this agreement, Homins plans to open 50 new Hyatt Studios hotels over the coming years while building a robust pipeline to fuel future growth across China. At the end of the third quarter, upper mid-scale brands now represent 13% of our pipeline, up from 10% at the end of 2024. And more than half of Hyde Select, Hyde Studios, and Unscripted by Hyde Opportunities are in markets where we currently have no brand representation, helping to drive organic capital-like growth and increased network effect across our global portfolio. Our strong pipeline and the momentum we are seeing our upscale and upper mid scale brands underscore the significant white space that we believe will support strong growth for years to come. Before I close, I want to spend a few minutes highlighting one of the most powerful strategic assets of our business, our loyalty program, World of Hyatt. During the quarter, World of Hyde surpassed 61 million members, an increase of 20% year-over-year. World of Hyde continues to be the fastest-growing major global hospitality loyalty program, with membership having increased nearly 30% annually since 2017. Today, we have more than 40% more members per hotel compared to our closest competitor, under proof of the deep engagement and strong preference we've earned from high-end travelers. While growth and scale matters, what truly sets World of Hyde apart is our purpose. Our program goes beyond transactional awards to create an experiences platform that delivers meaningful personal connections. Whether it's through our Guest of Honor program, which allows members to gift their top-tier status to others, or the introduction of award gifting, we've redefined what loyalty looks like by making it personal. Being personal also means that our members receive the most consistent and guaranteed benefits in the industry. In addition, we reward deep engagement through our milestone rewards program, which delivers differentiated value even after a member achieves the highest elite status. The expanded agreement with Chase, which we announced yesterday, is a compelling proof point of how our differentiated loyalty program can deliver value to shareholders while providing rewarding experiences for members across all stay occasions. The significant increase in economics will be driven by the expanded collaboration of Chase, the continued growth of World of Hyatt membership, the strength of Hyatt's global portfolio of premium brands and Hyatt's robust pipeline. Adjusted EBITDA recognized by Hyatt related to these economics is expected to be approximately $50 million in 2025. We expect this to grow to approximately $90 million in 2026 and more than double to approximately $105 million in 2027, and we anticipate continued growth in future years. We also expect to deepen engagement with our members and continue to evaluate additional card products in the future, building on the success of our current co-branded cards. When a loyalty program is designed with care at its core, it leads to greater guest preference, and helps support a powerful commercial platform that delivers more direct bookings and makes Hyatt more attractive to owners. And as we continue to grow our portfolio and expand into new segments and markets, we believe the power of World of Hyatt will continue to fuel preference and long-term value creation well into the future. As I look ahead, I'm encouraged by the momentum in our business and the performance of our brands. Our evolution to a brand-focused organization is designed to position Hyatt to be the most responsive, innovative, and highest performing hotel company. And I'm incredibly excited for our future. I will close by expressing my gratitude to all Hyatt colleagues who care for each of our stakeholders every day. Joan will now provide more details on our operating results. Joan, over to you.

Thank you, Mark, and good morning, everyone. Over the past year, we've taken steps to align our above property and corporate teams in support of our brand-focused evolution, and we are confident these changes will deliver long-term benefits for multiple stakeholders. Our commercial teams have identified greater capacity to invest in initiatives that are expected to benefit our owners, including technology innovations and marketing efforts to further improve the performance of our brands. We also expect to realize lower run rate adjusted G&A costs over time. We expect adjusted G&A in 2026 will be moderately below full year 2024, despite two years of inflation and the addition of incremental payroll and other costs from acquisitions over the last year. As a result of these initiatives, we expect to incur approximately $50 million of restructuring charges this year, the majority of which were recorded in the third quarter. Now turning to third quarter results, REVPAR grew 0.3% compared to last year in line with our expectations shared during our second quarter earnings call. In the United States, REVPAR declined 1.6% to last year in line with our expectations driven by select service hotels and the timing of Rosh Hashanah. Business transient REVPAR grew low single digits in the quarter, an improvement over the decline we saw during the second quarter. Full-service hotels were negatively impacted by the holiday timing, which led to lower group contribution in the quarter, while select-service hotels were below last year due to softer leisure transient demand. RevPAR outside of the United States performed well, and we saw continued strength in international markets. Europe saw positive RevPAR growth driven by strong international inbound travel, by lapping a tough comparison from one-time events last year. Greater China grew RevPar to last year due to increases in leisure transient demand. Net package RevPar growth at our all-inclusive properties grew 7.6% in the quarter, highlighting the continued strong demand for leisure travel. Pace for our all-inclusive hotels in the Americas, excluding Jamaica, is up over 8% in the fourth quarter, and for the holiday festive period, it's up over 11%. As Mark mentioned, the sustained demand for luxury, all-inclusive travel gives us confidence as we look ahead to 2026. We reported gross fees in the quarter of $283 million, up 6.3%, excluding the impact of the Playa Hotel acquisition. Gross fee growth was driven by international REVPAR performance, new hotel openings, and non-REVPAR fees. Owned and leased segment adjusted EBITDA increased by 7% when adjusted for the net impact of asset sales and the Playa hotel acquisition. Distribution segment adjusted EBITDA was down to last year from lower booking volumes and lapping a one-time benefit related to ALG vacation credits from last year. The decline in travel from four-star and below hotels led to lower booking volumes and earnings flow-through despite higher pricing and cost mitigation initiatives. In total, adjusted EBITDA was $291 million in the third quarter, in line with our expectations. During the quarter, we repurchased approximately $30 million of Class A common stock and have approximately $792 million remaining under our share repurchase authorization. During the quarter, net proceeds from the sale of a hotel in Playa del Carmen were used to repay a portion of the delayed draw term loan. And we expect to close supply of real estate transaction by the end of the year, and we'll use the net proceeds to repay the outstanding balance on the delayed draw term loan. As of September 30th, 2025, we had total liquidity of approximately $2.2 billion, including $1.5 billion in capacity on a revolving credit facility. On October 30th, we executed a new credit agreement that replaces the prior facility and provides for a $1.5 billion senior unsecured revolving credit facility, which will expire in 2030. We remain committed to our investment grade profile and our balance sheet is strong. Before I cover our full year outlook for 2025, please note that we continue to include additional schedules within the earnings release related to our expectations for playa in the fourth quarter of this year. We've lowered our fourth quarter outlook for Playa by $7 million at the midpoint of our range as a result of Hurricane Melissa, while the full year outlook remains unchanged after a strong third quarter. For modeling purposes, our outlook assumes that we will own Playa's real estate for the entirety of the fourth quarter. And I'll cover our full year outlook for 2025. which does not include the impact of supply acquisition or planned real estate sales transaction. The full details of our outlook can be found on page 3 of our earnings release. We were encouraged by the performance of our hotels over the course of the third quarter. We expect full-service hotels in the United States to deliver higher growth in the fourth quarter compared to select service hotels due to easier group comparisons. We also anticipate our luxury portfolio and international markets to perform well in the fourth quarter, supported by strong demand trends and high-end consumer resilience. We've tightened our RevPAR range and expect full-year 2025 RevPAR between 2% to 2.5%, which implies RevPAR growth in the fourth quarter between 0.5% and 2.5%. The quarter is off to a good start with October REVPAR increasing in the United States by approximately 1% and globally by approximately 5%. For the United States, we expect REVPAR growth for both the fourth quarter and full year 2025 of approximately 1%. We expect fourth quarter REVPAR growth outside of the United States to remain an area of strength, especially in Europe and Asia Pacific, excluding greater China. We're increasing our net rooms growth outlook range to 6.3% to 7%, which does not include rooms added from the playa acquisition. Growth fees are expected to be in the range of $1.195 to $1.205 billion, a 9% increase at the midpoint of our range compared to last year. We've lowered our adjusted G&A range $440 to $445 million, reflecting the run rate cost efficiencies that we've been able to achieve throughout the year. Adjusted EBITDA for the full year is expected to be in the range of $1.09 to $1.11 billion, an 8% increase at the midpoint of our range compared to last year when adjusting for the impact of asset sales. As a reminder, owned assets sold in 2024 accounted for $80 million worth of owned and leased segment adjusted EBITDA last year. Our full year adjusted EBITDA outlook implies growth in the fourth quarter of 9% at the midpoint of our range. Adjusted free cash flow is expected to be in the range of $475 to $525 million. which excludes $117 million of deferred cash taxes paid in 2025 relating to asset sales that took place in 2024. In the fourth quarter, we'll receive upfront cash of $47 million as part of the amended agreement with Chase. And we are increasing our full-year outlook for capital returns to shareholders and expect to return approximately $350 million in 2025 inclusive of share repurchases and dividends. Our capital allocation priorities remain unchanged. We are committed to our investment grade profile, identifying opportunities to invest in growth that creates shareholder value and returning excess cash to shareholders in the form of dividends and share repurchases. In closing, our third quarter results reflect the strength of our business model and the effectiveness of our long-term strategy. Looking ahead, We believe our talented brand-led organization, strong development pipeline, and differentiated loyalty program provide meaningful advantages in today's dynamic environment. As we continue to expand into new markets and segments, we're confident in our ability to drive sustained growth, enhance profitability, and deliver attractive returns to shareholders. This concludes our prepared remarks, and we're now happy to answer your questions.