Good morning, and welcome to the Hyatt Third Quarter 2022 Earnings Call. At this time all participants are in a listen-only mode. After the speakers' presentation, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Noah Hoppe, Senior Vice President, Investor Relations. Thank you. Please go ahead.

Thank you, operator. Good morning everyone and thank you for joining us for Hyatt's third quarter 2022 earnings conference call. Joining me on today's call are Mark Hoplamazian, Hyatt's President and Chief Executive Officer; and Joan Bottarini, Hyatt's Chief Financial Officer. Before we get started, 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 this call will be available on our website for 90 days. And with that, I'll turn the call over to Mark.

Thank you, Noah. Good morning, everyone, and welcome to Hyatt's third quarter 2022 earnings call. Before we begin, I would like to address Hurricanes Ian and Fiona. Guided by our purpose of care, the Hyatt family came together to support impacted colleagues and communities in both Florida and the Dominican Republic, including funds provided by Hyatt, a colleague created fund and a donation by the Hyatt Hotels Foundation to the American Red Cross relief efforts. To all of our colleagues who continue to show unbelievable generosity and care, thank you. And to all of our colleagues who continue to require assistance, the Hyatt family is here for you. As we dive into our results, I'd like to first acknowledge an important milestone in the history of Hyatt that was reached during the quarter, our 65th anniversary since Hyatt's founding by the Pritzker family. From opening the first hotel in 1957 to opening our 1,200th hotel this past quarter, we were reminded of our incredible transformation over this time and our results in this quarter reflect the impressive momentum we are building. It is a point of pride for the entire Hyatt family that we honor this anniversary with the strongest third quarter in the company's history, building upon the record performance that we delivered last quarter. The significant growth in our core business and the contribution from ALG continue to fuel our record results. Through the first nine months of this year, we have already generated $676 million of adjusted EBITDA plus $66 million of net deferrals and $48 million of net finance contracts. To put the magnitude of our growth into perspective, the sum of these three numbers is more than 40% above the $563 million of adjusted EBITDA we generated during the first nine months of 2019. The…

Thank you, Mark, and good morning, everyone. My commentary today will cover consolidated financial results, key drivers of our strong performance, capital allocation execution and expectations I can share for the remainder of 2022. This morning, we reported third quarter net income attributable to Hyatt of $28 million and diluted earnings per share of $0.25. As Mark mentioned, this was a record third quarter with adjusted EBITDA of $252 million, including ALG’s contribution of $78 million. Additionally, net deferrals were $17 million and net finance contracts were $26 million. The strength of our results was largely driven by our outsized growth in fee revenue. Total management franchise and other fees were $224 million, an increase of 50% from the third quarter of 2019, driven by the significant fee contribution from ALG and our industry leading organic growth over the past five years. As a result of our expansion in fee revenue, the mix of our fee-based earnings relative to real estate earnings was an excess of 70% for the quarter, illustrating how we are quickly transforming our earnings model. If you also include ALG vacations, which is inherently asset light, given its revenue is primarily derived from commission, and the level of capital investment required is minimal. Our total mix of asset light earnings relative to real estate earnings is even higher. Turning to our legacy Hyatt results. Adjusted EBITDA was $174 million for the quarter, which is approximately 31% higher than 2019 adjusted for currency and the net impact of transactions. Our management and franchising business benefited from our larger system size in a more fully recovered RevPAR environment. As Mark mentioned, system-wide RevPAR was 2% above 2019 with the growth all driven by our Americas, in EMEA and Southwest Asia segments. These two segments reported adjusted EBITDA greater…

Thank you. [Operator Instructions] Shaun Kelley from Bank of America. Please go ahead. Your line is open.

Hi, great. Good morning everyone. Thank you for taking my question. Mark or Joan, I'm curious to get a little bit more color just on what's implied by kind of where you're at with the fourth quarter outlook? I know there is a different ways to disclose this as we're kind of looking both year-on-year and – versus 2019. But the way we're kind of thinking about it is, is the core trend here a little bit better in the fourth quarter versus what you saw in the third quarter? And third quarter was up 2% global. Is what's implied by your guidance in the fourth quarter a little bit better than that? And maybe just walk us through some of the puts and takes that might be driving that, if that's the case?

Yes. Thank you, Shaun. I'll start and then maybe Mark wants to add on a bit too. I would say for the fourth quarter, our guidance range that we increased about a point at the midpoint of the range reflects about the same to a little bit better for the fourth quarter. As we look at, we are building confidence here in the forward-looking bookings that we're seeing that we are experiencing both on the group side with – in the quarter, for the quarter, third quarter group bookings up 20% in the fourth – for the fourth quarter and the festive period that we have extending now between November and December, up 30% for the AMR properties. So, some of these longer out bookings that we're seeing in the fourth quarter are giving us confidence that we'll be at or above those levels compared to 2019 and that's what's embedded in our guidance numbers.

Yes. I think – what Joan said, I agree with what Joan said. We finished October ahead of 2019 by 5 points if you exclude Greater China. In group, we were up sequentially September to October 18% in actualized business and the near-term booking and state momentum is just palpable. It's very, very clear to us. And when we think about the dynamics, the shortening booking curve, I'll just give you one example that will really, I think, illustrate this very well. Six months ago, we were minus 7% pace-wise for October of this year. We finished October 6% above. So you can just see what the impact of that shortened booking curve is and corporate demand continues to significantly sustain. Total transient, we don't have a good breakout yet. We could close the month. Total transient revenue for October was 4% above September. So we go into the quarter not sort of holding on by our fingertips, but actually walking firmly with confidence into the fourth quarter.

Thank you for the color. And just maybe as a quick follow-up. One of the things we've noticed is just as we think about the broader, call it, EBITDA cadence or contribution for Hyatt across the business line. It seems like seasonality in 3Q relative to 2Q was a little bit lower than what we've seen in the past. I know there's a lot going on with sequential recovery dynamics and group and leisure. Just the different channels are off. But if we think about that pattern, is that actually the case? I mean, is the business a little bit more stable quarter-to-quarter as we look forward and just think about kind of how to think about these broader trends, just given both the contribution from ALG and then just broader – maybe the broader portfolio around some of the changes in the owned and lease mix?

Yes. I think the answer is that the seasonality, I think, is going to end up reflecting a change, a more fundamental change. For example, some of the volumes that we saw that were a welcome surprise from ALG Vacations filled in some gaps that they typically would have seen in years past in late September into October because of bookings that leisure sustained. And so I think that – but apart from ALG, which continues to post obviously very strong numbers and the fact that we've got an expanded leisure component overall, what happened in post Labor Day group was very significant and we – in business transient as well. When we look at post Labor Day, September, we saw – we improved our total business transient to minus 20% compared to 2019 levels, which is a significant improvement from the minus 38% comparison in Q2 of this year. And so I would say that we – and there is a blurring of course between the commercial activity in transient versus group as well as between business travel and leisure. So I think that the typical seasonality, if you went back to like 2017 and 2018 and 2019 and said, what is the seasonal patterns there, I think third quarter is going to end up evening out a little bit relative to those historical trends because of some of these dynamics.

Thank you very much.

Sure.

Our next question comes from Joe Greff from JPMorgan. Please go ahead. Your line is open.

Good morning everybody.

Hi, Joe.

Good morning.

Given the momentum in growing the ALG footprint, which we obviously seen in the last two quarters, as well as some of the things you discussed earlier, Mark, do you think that 6.5% net rooms growth rate is sustainable through 2023 based on what you know now about the pipeline?

Yes. I think the fact is that we've made a lot of modifications in terms of how we've gone to market this year. We are experiencing the expected lull in openings for select service hotels in the United States and also the China openings have really taken a hit, primarily because of the inability to get contractors and workers on to job sites and to get materials to job sites. So the serial lockdowns have really cost us significantly. But we're also seeing now on the other side of that, some really significant improvements. And so we've opened a couple of really important hotels in China at the beginning of October. Just to give you some sense for this. So let me give you a little context. Right now, I think our expectation is or our belief is that we're going to open something around 10,000 rooms in the fourth quarter. And that's – you might say, wow, that's a huge amount booked into the very last quarter of the year, half of that is Lindner hotels, and we are well along in finalizing all of the arrangements to close that transaction. And the other half is across the rest of the portfolio. We opened more than 3,000 rooms in October against that other 5,000 rooms. So we're seeing even though things got delayed. And I can tell you that a lot of those 3,000 rooms that we opened in October were lagged, we were – we expected to open them earlier, but everything is now – you've got to be ready to pivot and recognize that we've got slippage in many, many different places. So, well, my point to you is that things are firming and we have actual openings to point to in the near-term. And we've got other portfolio deals on which we're working, which give us great confidence that we're going to sustain this net rooms growth into next year.

Great. Excellent, thank you.

Thank you.

Our next question comes from Richard Clarke from Bernstein. Please go ahead. Your line is open.

Hi, good morning. Thanks for taking my questions. Just a little bit of a clarification question maybe on the NUG guidance there. So you're saying that Lindner is included. I've got Lindner at about 17%. So did you know about Lindner in Q2? And it's just got a little bit bigger. Maybe you can just help me understand because otherwise it looks like you've gone backwards on NUG guidance ex the Lindner deal?

No. We had visibility to Lindner. We had confidence that we could get it done. What we didn't know for sure is how much of the portfolio would come across in the final negotiation. We finalized that and announced it in early November in Munich. So that's when we – do I mean that early October is what I meant to say, I apologize, early October. And so yes, we knew about Lindner. No, we didn't know precisely how many hotels and rooms would come across. And the reason why we had enough confidence to embed it in our modified outlook was because we – this is not the first deal we've done with Lindner family. We have two now – actually, as of this coming week, three other hotels that we will have opened with them, including a destination Hyatt Hotel in Ibiza under the 7Pines brand, which is the – which was rated the best resort hotel in Ibiza recently. So the performance in these hotels with respect to direct channel and with respect to World of Hyatt penetration have been phenomenal. And I spoke with the family members who lead the group yesterday. And he noted to me that the reason why we've been able to do what we did in such quick succession is because of our experience in working together before. So this is the nature of what I think this is the shape of things to come in terms of our activity base. It's a very important network move because Germany is the number one feeder market for the Balearic Islands and the number two feeder market for the Canary Islands, where we have significant all-inclusive resort presence. So there's an intentionality to what we're trying to do. It's not just a representation play for Germany and for Europe. It's also to extend and bring millions of additional customers into the World of Hyatt and expose them to now our much bigger resort portfolio in Europe.

Thanks for that. Maybe just a follow-up on that topic. I mean, how many of these portfolio deals are they out there? Are there other deals you could sign with groups where you bring many thousands of rooms on at once? And maybe guessing your answer to that question might be quite optimistic. If that's the case, why are you talking about maybe doing more M&A? Why do you need to do M&A is that these organic opportunities out there?

We've never considered to be a trade-off. Our view – if I look back and I see the performance of what we've done for two roads hospitality, for example, we have – we are trending dramatically ahead in our total fee revenue and our total fees per key relative to our underwriting for that transaction, and we have grown the pipeline significantly since we bought that group. ALG, I think, speaks for itself. If you have any questions, I'm happy to go into detail across any dimension of ALG. And Miraval now has three high-performing resorts. And we are signing asset-light deals to manage third-party constructed or third-party developed Miravals globally in the U.S. and the Middle East and in Europe and we are also working on deals in Asia. So I guess what I would tell you is if the deals that we had done historically proved to be really unsatisfactory or not productive as growth platforms that this is – these are brands that – this is the gift that keeps on giving year after year after year, especially if you perform. And our concentration in lifestyle and luxury and leisure has paid off, allowing us to focus, I would say then we shouldn't do them, but we have – it would be all evidence to the contrary notwithstanding, if that's the decision we made.

And maybe just the visibility on the portfolio deals? Are there any more of those out there?

The fact is, I'm not going to go into any detail whatsoever because of competitive dynamic issues. You can imagine that some of those transactions are competitive in their nature. What I will say is that we – as a result of our long-time presence in a lot of markets and the addition of AMR hotels and some of the people at AMR who have decades-long relationships with families in Europe that have portfolios, we feel very, very well positioned to both understand exactly what's going on in the marketplace, and we have a – we are the largest player, the largest managed brand portfolio of luxury and all-inclusive resorts in the world. So we have a unique position from which to seek these kinds of transactions out.

Very useful. Thanks very much.

Thank you.

Our next question comes from Patrick Scholes from Truist Securities. Please go ahead. Your line is open.

Hi. Good morning everyone.

Good morning.

Sorry, if I missed this earlier. Can you give us a little bit of color about your net unit growth trends, specifically for the ALG group in Europe and in the Caribbean, how that trended in the quarter? And if any type of color or expectations that you can give on that for next year? Thank you.

Yes. So we're up 10% year-to-date in terms of growth in the portfolio. We've got a number of openings that we did expect in 2022. When we looked at the pipeline when we first bought the company, we thought that 2023 would be lighter than 2022 and then 2024 and 2025 would be much heavier just by virtue of the timing of the construction of assets. What I can say is that unlike some of the challenges that we have seen in the United States in getting hotels built and opened, we've not seen really those challenges in continuing a pace – the construction pace in Mexico, the Caribbean and in Europe. So our confidence that we're going to be able to continue to maintain, our momentum is relatively strong. And reminder, the answer to my prior – the prior question was about portfolio deals. Those apply not just to Hyatt, but to ALG as well. So I would say that we feel very, very good about continued growth and our 2022 performance is at or above our going in expectations.

Okay. Can I ask a follow-up question?

Sure.

I suspect I know the answer, but I’d like to hear it from you. Certainly, we stayed in very strong room rate pricing growth in the Caribbean and for all inclusives. Are you starting to see any pushback from customers on that room – on those room rates? Thank you.

No. We’re not. I would tell you that with respect to our bookings, Q4 pacing in the ALG portfolio is plus 30% to 2019. Q1 2023 pacing is up in the mid-teens to 2022. So year-over-year it’s up in the mid-teens, and the vast majority of that is rate. So we see no abatement of that. And I’ll tell you that there’s a fundamental human behavioral aspect that’s at work here. What used to be COVID stress that was driving travel demand to a certain extent. And maybe the urgency, what do they call it revenge travel or pent-up demand, whatever you want to call it. What that’s turning into now is there’s a nebulousness about the macro outlook. Of course, the issue isn’t that people have certainty that we’re going to have a problem. The problem is that there’s uncertainty and people just don’t know. So that sort of financial stress or concern is something that people are looking to manage. And so, all inclusive turns out to be a wonderful antidote to that because it’s a one stop shop. You pay an amount that you are certain of, you don’t walk into a vacation and have no idea how much it’s going to end up costing you, exactly what it’s going to cost you. And once you get on property, you can truly relax. And we’ve got an ever growing number of experiences that we provide our guests. So I believe that we’re going to see a continued strengthening of demand for all inclusive vacations during this period of time when people need respite and some renewal at a time when other things in their lives may be less certain.

That is a very true statement at the end there. Thank you. I’m all set.

Thanks.

Our next question comes from Dori Kesten from Wells Fargo. Please go ahead. Your line is open.

Thanks. Good morning, everyone.

Hi, Dori.

Hey, Mark. What would you need to see whether it’s the economy bookings, the booking window to make you feel comfortable returning to providing an annual EBITDA guidance?

It’s a great question. I think, we were – we’re still learning consumer behaviors and how they’re evolving. I think the third quarter’s evidence of that where the vacations performance, the ALG vacations performance was outsized. Now, we also had some help in the EBITDA performance in the quarter because they got some rebates from air travel for prior periods. But that was on the huge portion of their quarter. But so we got a little help there. But I think just generally speaking, the volumes have been remarkably strong. And I would say that we’re in learning mode. I think we believe that because we’re going to be handling over 2.6 million passengers and over $3 billion of gross travel booked across that portfolio, that platform rather it gives us amazing visibility. But what we are seeing is it doesn’t give us much predictor value because consumer behaviors continue to evolve at this point. So I would say that we’re seriously thinking about the question that you just asked, and we’ve been discussing it actively. As in years past, our practice is to provide whatever guidance we are going to for the follow-up for the coming year in our February call. And we’re going to be talking a lot about this topic between now and then. And I hope we can provide some more visibility, but it’s really going to depend on our discussions and how things evolve between now and then.

Okay. This may be a stretch then, but Marriott just said on their call that they expect RevPAR to increase quarterly, year-over-year in 2023. Would you share those expectations when you just consider the headwinds and tailwinds that we know today?

Yes, I think, let me just – let me take a step up or back. I think that there are several reasons to believe. So let me tell you why I believe. The first is that we’re going to be lapping Omicron. We were down 25% in the first quarter to 2020 to 2019, sorry, first quarter of 2022, relative to 2019 and we were down 5% to 2019 in the second quarter. So we are lapping a period of much more hindered demand levels. Second, supply growth has slowed, period end of story. And it usually, in a simplistic way when demand exceeds supply, you have sustained pricing. And I do believe that demand will continue to outshine supply. Third, China has been on its back in a very volatile rollercoaster over the course of the entire year. Any stability in China is a massive improvement year-over-year. Fourth, we have four – five going on six years industry leading net rooms growth. And those new rooms are producing significant increases in our fee base. And if you need a couple more to fill out that list of four, those would be my top four. First, we believe it’s still too early to say one month does not a trend make that we may have peaked out with respect to wage rate inflation. It feels like we are headed to something that is starting to feel more stable. I would describe that as part hope and part data. So check in with me in a few months and we’ll talk more about that topic. Another one is that we have room to grow. We still have – we’re still running occupancy that is 800 basis points lower than it was in 2019. Admittedly, a big chunk of that is driven by China. So don’t want to overdo that. And the final reason to believe is what I said to an answer to the prior question, which is, this need for stress relief fits perfectly into our – and into our strategy, which is we’ve got an expanded wellbeing offering set that we are rolling out. We just relaunched our FIND platform. If you don’t know what FIND is, please go to hyatt.com and seek it out. And it’s a number of wellbeing practices that we make available to our world of Hyatt guests and the benefits of all-inclusive. So those top four though are structural. And while they are as a lot of opacity with respect to how China is going to evolve this year, let’s just face it – China had a very, very, very difficult year this year. So any improvement is going to tend to make improvements. So those are a number of reasons that why we believe we’re heading into another strong year.

Thank you. That was very helpful.

Our next question comes from Duane Pfennigwerth from Evercore ISI. Please go ahead, your light is open.

Hey, thanks. Nice to speak with you. Just on the dispositions or asset sales, does success on the fee front basically reduce your appetite for asset sales? And can you just speak to kind of the current tone of conversations?

Yes, look, we are very experienced in this market. We’ve sold over $4 billion worth of real estate in the last five years. So to say that we’ve been active, if not a significant player is an understatement. So we track this very carefully. There’s several things going on right now. The first is not – there are different. We always look at who’s active, where’s the money and who’s active. So there’s an unprecedented level of equity in private equity and opportunity funds. But they’re actually not in the market right now because their underwriting process includes a precise calculation about advanced rates and cost of debt, which are not favorable at the moment. What you are seeing is REITs. REITs are in the market and private REITs are somewhere in between at this point. So we are constantly evaluating the – where the demand for new properties is going to be and how robust that demand looks like, and how that’s – how that trades off. We’ve been extraordinarily disciplined about what we sell for what price. We have outperformed our own expectations and dramatically outperformed any some of the parts valuations that we’ve seen in analyst reports. So as far as I’m concerned, we don’t even need to discuss this any longer. We’ve got so much evidence that we have a very valuable real estate portfolio. And the value of the remaining portfolio that we’ve got is at least as high as a meaning at least as strong in terms of the quality of the assets. I’m not saying it’s equally large as the portfolio that we’ve already sold. So what do we see? We see that the deal market’s not dead. We see that there’s a very significant bias towards resorts and luxury at this moment…

Thank you for that very comprehensive answer.

Juliane, we’ll take our last question, please.

Thank you. Our last question comes from Smedes Rose from Citi. Please go ahead. Your line is open.

Hi, thank you. I just wanted to ask you a little bit about the vacation club membership sales. You mentioned they were up over 30% versus the third quarter of 2019 to over 9,000 contracts. Is that a function of more sort of venues that are selling the contracts? Or I’m just trying to think about how we should sort of think about growth in that contract line going forward because it’s certainly higher than what we were forecasting?

Smedes, this is a great result coming from the sales of the unlimited vacation club contracts. And what we’ve seen through the network effect of ALG is that within net rooms growth that we’ve experienced in the portfolio. That provides more opportunities to sell the contracts. We’ve done some work on the program itself and creating different tiers. And we found that some of the higher tiers are also very popular with new members. So – and incorporating World of Hyatt into the AMR portfolio and working to actually integrate the World of Hyatt benefits, with the UVC benefits has also proven to strengthen and provide more benefits for the UVC program. So all of these things are helping to fuel greater interest in the unlimited vacation club. And we’re also – just also want to point out that we’re seeing a lot of durability with respect to those contracts that we’re signing. Our rates of any type of uncollectibility are extremely low. So I’d like to just point out again, the disclosure that we provided in the earnings release, which I think we’ll find useful to just give some more context between the drivers of cash in the net deferrals and net finance contracts. That is helping to explain what’s behind those two items that we’re including in our economic value results for ALG. So hopefully that explains the drivers behind the growth and also further give some context into those numbers on the earnings release that we provided this morning.

Great. Thank you. Appreciate it.

And this will conclude today’s conference call. Thank you for participating and have a wonderful day. You may now disconnect.