Hyatt Hotels Corp. Q3 FY2024 earnings call

Mark Hoplamazian acknowledged damage from recent hurricanes and met with teams in Europe and Asia. System-wide RevPAR growth of 3% was noted, with different performance in various regions like Americas, Greater China, Asia-Pacific, Europe. World of Hyatt membership growth, pipeline expansion, notable hotel openings, completion of asset disposition commitment, acquisition of Standard International, joint-venture with Grupo Pinero, and formation of new lifestyle and luxury groups were highlighted. Joan Bottarini provided details on operating results, including RevPAR trends in different regions, gross fees, segment-adjusted EBITDA, and share repurchases and debt repayment.

System-wide RevPAR increased 3% in the third quarter. Management and franchising segment adjusted EBITDA increased ~9% driven by gross fees. Owned and leased segment-adjusted EBITDA increased 13% when adjusted for net impact of transactions. Group rooms revenue increased ~6% in the quarter. Business transient customers had revenue up ~16%. World of Hyatt membership passed 50 million milestone, reaching ~51 million at quarter-end, a 22% increase year-over-year. Spending on co-branded credit cards increased 16% through first nine months of 2024. Pipeline expanded to 135,000 rooms, a new record, representing 41% of existing room base. Net rooms growth of 4.3% achieved in the third quarter.

Global full-year system-wide RevPAR growth expected to be in range of 3% - 4% compared to 2023. US RevPAR growth for full year ~1% - 1.5%, fourth-quarter RevPAR growth similar to third quarter. RevPAR growth in Greater China expected to improve in fourth quarter, full-year flat to 2023. RevPAR growth in other international markets to exceed high-end of range. Net rooms growth expected in range of 7.75% - 8.25%, if joint venture with Grupo Pinero closes in early 2025, range 4% - 4.5%. Gross fees expected in range of $1.085 billion - $1.11 billion, a 13% increase at midpoint. Adjusted G&A expected in range of $425 million - $435 million. Adjusted EBITDA expected in range of $1.1 billion - $1.12 billion, a 5% increase at midpoint. Free cash flow expected to range from $380 million - $410 million. Capital returns to shareholders expected ~$1.25 billion.

Risks related to forward-looking statements subject to numerous uncertainties as described in SEC filings. Impact of hurricanes on leisure travel, including bookings and RevPAR. Higher-than-expected attrition of rooms, some due to hotels not meeting brand standards or market-specific issues. Potential for slippage of hotel openings into future periods.

Q: Good morning, everybody. Thanks for taking my questions. Kind of a two-parter on the updated guidance. Net rooms growth organically looks like it's down relative to a quarter ago. Can you help us reconcile the drivers of that shift. And then, with respect to this most recent pending acquisition, the joint-venture, can you talk about sort of -- I don't know, maybe you can frame it on a trailing 12-month EBITDA basis. I know you gave out year fee contribution, but if you can maybe talk about what the run rate might be presently and then maybe how you're thinking about it for next year as we kind of think about incorporating not just the rooms, but also sort of years one through three contribution?

A: Great. Thank you very much, Joe. On the outlook for net rooms growth, a few things that I want to note. The first is, our gross openings this year are expected to be over 6%, lower than our expectations because of slippage of over 2,000 rooms into 2025. And part of that is hotels that are under construction that slipped for openings -- or that we expect to slip, I should say, we're not at the end of the year yet. So who knows? They may be pulled forward. And some conversion deals that we've been working on that aggregate up to a significant number of rooms. So that's the first development, I would say, from our last update. The second is that attrition of rooms came in higher than we expected. It's approaching something like 1.5% this year, which is significantly higher than our typical run rate, which has been between 0.5% and 1%. And some of that difference, about 40% of that difference has to do with brand standard and market-specific issues that affected our renewal or agreement to move forward with certain hotels in our portfolio. Some of it is markets that have become, I would say, more challenging or where the central business district has moved and we are looking for new representation. In a couple of cases, owners that we didn't come to agreement with on bringing hotels to brand standards. So part of that has to do with just discipline in maintaining standards and elevating the quality of our portfolio. And a few hotels with larger room counts that were conversion hotels expected to open this year that came out. The overall momentum though remains intact and we're -- and we're looking into a first quarter of '25 where gross openings are tracking to a year-over-year net rooms growth of over 6%. And while, of course, we might experience slippage out of the first quarter, there's no systemic or structural gap to our outlook for organic growth in the range of 6% going forward. There are three other things that I thought I just mentioned quickly. First, this is supported by significant ongoing growth of our pipeline and increasing construction starts and improving conditions for hotel development generally. Second, we've had a significant level of conversions that have benefited us over time, especially in the last several years, and we expect to engage in conversions, portfolio deals and the like in the future. That activity is not included in this organic growth outlook I just gave you. And third, we are not including affiliation arrangements or rooms that are associated with affiliations or other so-called "units," whether they be residential affiliations or loyalty partnerships or whatever the form may be, our net rooms growth is purely managed or franchise rooms and, in rare cases, those homes or townhomes that are also covered under either a management or a franchise agreement period. As Adam already mentioned, we have included additional information on the hotels and rooms that are part of arrangements that we have through Mr. and Mrs. Smith on which we earn booking fees, by the way, and Under Canvas. These have been hugely successful partnerships, but do not count as rooms for purposes of our net room to a calculation. That's on A4. Is that correct? Schedule A4, we just included those for your reference. So you could see that. So that's the story on the update. Basically, my confidence and outlook is quite positive. I feel really good about the momentum that we've got. And as I've said in the past, whether at a specific measurement date of any given year happens to fall -- openings happen to fall on one side or the other of that is not what I focus on. I focus on ongoing momentum, which我 think is very good. On the Bahia Principe deal, we have provided the information that -- I think we're going to provide until we close. We have a -- we do have an outlook for what the next three years will look like. And I would just say that, in a number of cases in which we have gone into a platform and in this case, it's ownership of a platform. In many of those cases, we had things that we had built into our underwriting and also into the plans with respect to either renovations or plugging into Hyatt systems that will apply in this case as well. So we will provide you more information when we close the transaction.

Q: Hi, good morning, everyone. And thanks for taking my question. You guys mentioned a couple of times the credit card fees adding -- it being additive in the quarter and certainly that's been a trend among your peers. Can you maybe talk about the order of magnitude or upcoming timing of the renewal and maybe how we should think about that non-RevPAR fee component of your growth going forward?

A: Well, I think we were -- we haven't gone into breaking out the details of what's in non-RevPAR fees. What I would say is the average spend per card -- the data that we have that I think will be reflective of the strength of our customer bases, and not the -- the spend per card holder is higher than many, many other -- I wouldn't say all because我 don't -- I can't say that conclusively, but it's at the very-high end of affiliated or co-branded credit cards. Second, the volumes have been growing, partly because我们 continue to expand our World of Hyatt membership base that have the card. And also, they are -- they kind of fit a profile where their spending is not directly linked to a specific state of the economy because they have relatively higher net worth and household income. So we think we'll continue to grow. For those of you who are tracking multiyear, we've been compounding growth of World of Hyatt membership by over 20% for the last couple of years in a row. We don't see that actually -- we see -- we're confident that it's going to continue to grow. I can't say that it's going to continue to compound at 20% forever. That would be fantastic, but very high. But it is in excess of actually the total rooms that we're adding. And I think part of that is that we are gaining some traction with respect to other experiences that we're offering and different price points that we're offering. So we're excited about all of that. In terms of the contract itself, I think we've made this comment before, but this is an arrangement that had a life through '25 or towards the end of '25. And so, we are actively engaged in looking at how our next phase of our credit card will be structured. And of course, no one waits until the deadline to get这些 deals done. So we're working on it now.

Q: Hi, thanks. Thanks for taking my questions. Within distribution and destination, I think你 said EBITDA in 4Q up 5%. Has the trajectory in this business changed at all? Was hurricane an impact? Just a little of any color on what you're seeing from a demand perspective? And then one quick follow-up.

A: Yes, sure. In the third quarter, we definitely had some impacts from the hurricanes, definitely in the Caribbean and Southeastern United States. So bookings were a bit slower and, just frankly, a little bit less than what we had noted on our second quarter earnings call. And in the fourth quarter, as we noted in our prepared remarks, there is a lot of reason to be encouraged by our leisure booking trends. So through the end of -- coming out of September and into October, our leisure booking pace has really accelerated. So as we look at the segments in the markets that our distribution business is managing, those markets in particular are really accelerating. So into the fourth quarter, we expect an increase, as I said, about $5 million in excess of last year. And into the first quarter, we have a very strong booking pace there for our resorts and the distribution business actually also serves those resorts and other markets there. So we believe that booking pace will continue into the future, into the near future.

Q: Hi. Good morning, everyone. And thanks for taking my question. Mark, maybe just to fill in from that last question about a couple of points. So first of all, for next year, if I caught你 correctly, I think你 said你 feel comfortable at 6%, but that would be kind of closer to a gross basis. So even if attrition normalized a little bit, still a little bit below, I think你的 kind of longer-term algo you laid out last year at the Investor Day. So maybe if you could just walk us through pros, cons on that piece? And then, specifically, on that last thing你 said about the ability to kind of trade-down on sort of the brand standard side, is that an opportunity for Hyatt? Maybe你 could just talk about that as you think about that and conversions because I think你're absolutely right, that is activity that we see, but other brand families have opportunities there. Is that something that Hyatt could explore?

A: Yes. Thank you, Shaun. First of all, that's correct. That's how -- you read my commentary correctly about 6% growth. I think that excludes any conversion activity. So I'm talking about pure organic in that number. And the fact is that we do have conversions that we continue to work on. They've been a material part of our total. So我 think we've talked about a about a longer-term outlook of 5% to 6%, or 6% plus or minus -- maybe 6% to 7%. And I think those numbers, if you put 6% at the midpoint of that net of attrition still remains our outlook. So我 think the level of conversions have continued to represent a pretty significant proportion of our total during this lull in new construction starts, especially in the U.S., and a rebound, which we have seen, in construction starts and construction activity in China. So we have seen increases in construction starts in China in the last two quarters and that represents -- so China -- rooms in China represent about 37%, 38% of our total pipeline. And in terms of rooms under construction, they represent 31%, which is up from last quarter percent of rooms under construction. So we're seeing some positive signs there that undergird organic. I think the number of portfolio deals and conversions, pure conversions, not acquisitions of platforms remains high and we are continuously pursuing those in -- especially in markets in which we have a particularly low relative penetration. Was there a second part of your question?

Q: With respect to the brand standards, we have -- A: There is potential opportunity for that.

Q: Hi, everyone. Thank you. Maybe on the inorganic side, you've obviously been very active from an M&A standpoint post your transformation. Can you just talk about the opportunity that you see there now and maybe what the multiples that you're kind of seeing in the market? Are they still relatively depressed. Do you see deals, all that stuff?

A: Sure. I think the way that platform acquisitions tend to be valued, they look like a very high multiple at the inception. I think if you looked at Two Roads or at ALG, ALG was also -- we bought it in the middle of COVID. So the trailing multiple was stratospheric. So你 don't -- we don't underwrite on the basis of trailing as much as understanding what's ahead for each portfolio. Every portfolio has got its own dimensions and different tenor and quality of the contracts that underlie the management agreements and the franchise agreements. All of it -- excuse me, all of that is taken into account for deals that we do and deals that we don't do. And so, I would say that, typically,你 would see a going-in multiple that's significantly higher, probably double or more what你 would expect to see on a run rate basis. Why? Because it takes some time to plug into loyalty programs, into other distribution channels and also to complete it to the extent that it's relevant renovation programs. So我 would say going-in multiples will look high. You really have to be careful and underwrite correctly for the growth in fee revenue and therefore EBITDA associated with these platforms to buy them down to something that's in the low-double-digits. Our general belief is that if we can have confidence that we end up on a glide path to a low double-digit multiple of earnings on an asset-light platform, that is value-accretive every day. And that -- and we currently are in -- if you look at the last four acquisitions that we made, we're tracking below 10. So we're in high-single-digits. So that's particularly good. And that's our design. That's what we're going to continue to focus on. We have so much white space that the other dimension that we have that others might not have as -- in as much capacity is to fill in a number of market tracks that we just don't have any representation in. So a lot of this that we see are places where we are way underpenetrated relative to our larger competitors. Therefore, the idea of adding new existing properties, this is not adding necessarily new capacity in different markets or adding new capacity in markets where we have very little representation is easily absorbed and also very welcomed by our loyalty members.

Q: Hi, thank you. I just -- I wanted to ask你, pro forma for你的 JV with Grupo Pinero, where do you see leisure as a percent of overall demand now in the Hyatt -- in the Hyatt system?

A: I think, right now, we're tracking between 50% and 55% leisure and this will take it up a little bit. It's a 30% increase in rooms and all inclusive. But relative to the totality, it's -- let's see -- about a 4% increase in our leisure rooms overall. These are hotels that trade at a lower net package revenue rate because they're 4.5 star hotels in the main and, therefore, it won't have as much as a 4% impact on our total mix.

Q: Thanks. And could I just ask你 one more quick one?你 mentioned markets in tracks where你 don't have a lot of representation. Do you feel like你 could potentially be an acquirer of real estate in some of those markets to get sort of jump-started, if you will, or is the system sort of big enough now that你 feel like it can kind of just sort of organically grow through conversions and people coming to你 and developers coming to你, et cetera?

A: Yes. If I look back on our history, we've executed a few different acquisitions of specific hotels or groups of hotels where我们 felt that我们 had a clear pathway to reselling those hotels, but they were specifically because they were exemplary in their location. The two biggest examples I can give you, well, the two-off top of my head that I can think of right away are the Hyatt Regency Orlando, which we purchased for over $700 million, the only convention hotel in Orlando connected to both sides of the Orange County Convention Center right in the middle of that complex. And of a quality -- it was a Peabody before we bought it, of a quality and a team ethos and culture that was amazing. It is a family-owned and run business and the culture of the team just matched beautifully with ours and the quality of the asset was really high. So we ended up having a unique opportunity. We wanted to control it. We negotiated a deal and it was all-cash. We completed diligence in very short periods of time because we knew the hotel in the market very well. And as you know, we owned it for a number of years and earned a very good return on it while we owned it and then just sold it for over $1 billion. So that's one example. The second example is the Hyatt Regency Mexico City. We've been absent -- completely absent in that market, it's a top-five MSMA in the globe -- around the globe. And we've not been present there for over 25 years. This is a hotel that's right on the Chapultepec Park in the middle of Polanco. It's like Maine and Maine. And it was a Nikoo hotel. They wanted to deal with someone that they -- that didn't need a financing contingency or anything else. We came in, completed diligence and all-cash, bought the hotel for about $190 million and we recently sold it a couple of -- I guess, a year and a half ago, two years ago, three years ago, pre-COVID for like $400 million, something like that. But that's because we were able to first unlock some additional value on vacant lots that were a part of that. So that's really -- those are two examples. So the answer is, yes, if it's a unique opportunity that gets us an amazing a location in a market in which we are underpenetrated all day, we will do that as long as we have a clear path to sell. So we -- and we will remain open to those ideas. It's not exactly what we're rushing around looking for, frankly, but they do arise from time-to-time and we just have -- we're not running into ourselves in any market in the world. So we have a lot of space to run.

Q: Hi. Good morning, everyone. And congrats on your quarter. I wanted to -- I'm looking at the page in your deck where you've added quite a few brands and channels, et cetera, over the past couple of years. And我 wanted to just get a sense from你, are these entirely kind of asset-free or when we say asset-light, that can be -- mean a range of different things, meaning are these entirely incremental to revenues and profits? Is there some sort of key money or other kinds of investment expectation that comes along with them? I'm just trying to sort of calibrate你的 earnings business as it grows going forward?

A: Yes. So, yes, there's key money that we deploy. That is covered in the CapEx figures that你 see in our reported figures. And so, we do make investments from time to time, and we also invest sometimes in the capital stack of hotels. What你 will not see or experience is guarantees. We do have some, but they are quite small. So we don't have synthetic real-estate exposure through leases. We're sort of allergic to leases actually. And we don't have -- well, that's -- leases are actual real-estate exposure. We don't have synthetic real estate exposure through guarantees. It's not -- I'm not saying we have zero guarantees. I'm saying that they are small and they are infrequent because我们 have aversion to operating guarantees as well. So we don't pretend that我们 are now asset-light while we are running around signing operating guarantees or synthetic leases to hide real estate exposure. And with respect to the investments that我们 have made, whether it's key money or actually helping to fund a given hotel through a preferred interest or sometimes an equity interest, although that's very rare or occasionally some guarantees on debt repayment, they're all disclosed. So they're already in our numbers.

Q: Good morning, everyone. Going back a few questions concerning some older hotels aging out of the system, it's -- what I heard from that is that你 folks could really use a sort of an upscale conversion brand, perhaps equivalent to something like Hilton's DoubleTree. Is that completely out of the question or might it be something that你 would be contemplating introducing?

A: Look, I learned a long time ago that你 never say never. It's not something that我们 have chosen to pursue to date. As we look forward, of course, we're looking at the total state of our real estate -- the real estate that underlies our portfolio. So it is something that我 think because of our relative penetration or distribution and because of the growth and the strength of our channels和 direct channel, it's possible that我们 could craft something that would work for existing owners. What我们 don't want to do is do something that is going to be a detriment to either our brand reputation and serving the higher end guests in each segment. And我们 also don't want to end up in a situation in which你've got something that is so -- that has scrambled kind of portfolio that你 can't tell what你're going to get. So我 think those are the sort of guardrails. So我 would say stay tuned. We will continue to monitor it and discuss this, but there's nothing that我们 have done to date at least that would be in that category. And我 would say converting former Hyatt Regencies into Hyatt Places is not trivial in terms of capital to actually conform it to the brand standards of a Hyatt Place. So it's not that我们 haven't done any of those, but it's more typical for us to convert hotels from other brands that are closer in area programming and size and shape of rooms into Hyatt Places, which we have done. Again, not trivial, but definitely possible. So, yes, we were -- our eyes are wide open. Those other brands -- our other brand competitors have very large collections in those other brands that they convert into, including some in the upscale or lower upscale. I'm sorry, in the mid-scale or lower mid-scale arena, I don't see us going there because it's not a market that我们 currently plan.

Q: Good morning, everyone. I wanted to ask你 about你的 view of the optimal number of brands in your portfolio longer term. Do你 envision keeping everything that你 currently have now or is there a streamlining opportunity within the existing portfolio and maybe the groups你 referenced, the new groups你 referenced, the lifestyle and the luxury groups relate to those decisions? And then I guess just lastly, if you do see an opportunity to streamline, what are the criteria你 think about to determine which of your brands wins?

A: Sure. First of all,我 hope -- our goal has been to add brands that have brand equity and brand rationale unto themselves that are distinctly identifiable and can be described as offering a different type of experience than other brands that我们 already own. So, so far, knock wood,我 don't think我们've overlapped in terms of buying a brand that is the substantive equivalent of an existing brand. Having said that, some are small and yet -- and still growing. So we have a lot of room to grow just within our current brand portfolio. Second, we have collection brands. JdV by Hyatt is one example. Destination by Hyatt is another example. Unbound Collection is another example where我们 have brought some third-party brands into those collections. There's a magnificent small boutique hotel brand in Scandinavia called Story, the Story Hotels that are JdV by Hyatts. There's a magnificent small collection of very high-end resorts in Europe called 7Pines that are part of the destination brand. So we have examples of other brands that我们 have brought into our collection brands and that is neither atypical nor something that我们 will stop doing. So there's -- there are opportunities when我们're working with mostly family or individual founders who want to continue to grow their brand equity, but be affiliated. So我 think that's where the primary "consolidation" might look like. But right now, in our business, because我们 have third-party owners going to them and saying, yes,你 bought this brand from us and because你 believed in it, now it's going to be converted into some other brand of ours, doesn't typically work well. So that's that. In terms of our brand evolution organizationally, yes, your point is well taken and the purpose of forming a lifestyle group and separately a luxury group is to hyper-focus on distinct customer groups that我们're serving and to more -- with higher fidelity and more breadth and depth, personalize the experiences of those guests to our brands and have much sharper definition of each brand, one by each. So that's really the goal, but it's going to be broken down, so that你 don't have -- when你 approach Hyatt,你're not going to have a cacophony of a laundry list of brands. You're going to see collections or groups that have logic for distinct customers和 guests. And that's really of doing the evolution that我们're doing in our organization.

Q: Good morning, everybody. Thanks for squeezing me in here. I just -- Mark, just a clarification on the commentary on gross net unit growth. I think你 said specifically that 6% growth excludes any conversion activity, but we know that conversions are a big part of你的 growth. So我 kind of took that as 6% growth ex sort of like big portfolio deal -- conversion deals-- A: If I had said that, I misspoke. I meant big portfolio deals, not conversions. Conversions, like run of the mill conversions, one by each, they are included in that number. So我 apologize if我 said that.

Q: No, I'm really happy we cleared it up. And then because other people had a second question, I'm going to throw an extra one in here, if you don't mind. The first quarter pace that你 gave for transient business looked really strong. I'm just curious -- that was a revenue number. I was just curious if你 could sort of suss out the pricing embedded in that? And then tell us, generally speaking, how much occupancy at this point would even be booked for that period and the visibility implied in there?

A: I actually don't have a good handle on what the total occupancy that's spoken for, but it's not insignificant. This is not a -- this is not -- on the basis of 5% of the business book for leisure, especially in the all-inclusive segment, which I'm more familiar with in terms of how the forward bookings work. And in the ADR composition -- I'm sorry. Flat meaning? ADR? ADRs are flat, so it's mostly occupancy is what我'm getting from one of my team members here. So that's the answer on that one.

Q: Good morning, everybody. I wanted to ask你 about two things that we didn't really talk about. The two businesses that we are now in one case, [technical difficulty] in another case 50% JV will be a 50% JV owner once we close. Our -- I will tell你 that our partners and the colleagues that我们 are bringing into the Hyatt family are aligned to it culturally and in values. And我 think this was the major win that我们 had with ALG. I think the culture worked beautifully and我的 speech to all of those colleagues that became members of the Hyatt family was, when culture works, everything works. It becomes easy because it's like fluid. And when culture doesn't work, there's a zero-sum game that sneaks in and it becomes a disaster. I'm telling你 that我 feel as strong, if not stronger about the standard colleagues that are coming to join the Hyatt family as well as the Bahia Principe Group, which is super professional. They started this business 50 years ago. Don Pablo Pinero created an amazing business from scratch and his family has carried on that legacy beautifully. And so,我 feel really strongly that this culture of care and the values that我们 share are going to position us for fantastic success going forward. So我 thank你 for你的 time. Of course, please come and experience care by visiting our properties, please. And lastly, Happy Halloween.} } </think>{