Hyatt Hotels Corporation ($H)

This is webcast, correct? Okay. All right, just to make it sure. Are we -- good afternoon yet? At least -- we're about there. Good afternoon, everyone. We're thrilled to have Hyatt here today. We have CFO, Joan Bottarini, and then Adam Rohman, SVP of IR and Global FP&A and Treasurer.

I think we can probably start off pretty high level. There's obviously been some news lately in the world on the geopolitical front. Can you just talk about what you're seeing across your business globally in terms of Middle East exposure? I know it's a very fluid situation, for sure, but kind of how are you seeing the business evolve over the past couple of weeks? Any interruptions? And then can you talk about also the other regions that could be kind of indirectly impacted by what's been going on?

Sure. Well, first, let me start out by saying thank you, Dan, for the invitation. This is a great conference, and my flight last night was fully booked, which is great.

So there's a good [indiscernible] for Vegas.

Yes. Yes. I love to see that all the time as far as travelers getting on the road and a lot in suit jackets, so the business travelers getting on the road is good, too. So let me just start, maybe take a step back before getting into the events. Core business has been very encouraging, strong end to the year last year and the first couple of months this year, we're seeing strength as well in leisure travel, in particular, which has been -- as we've said, our anticipation for the first quarter when we talked about this on our fourth quarter earnings call was that we had really strong pace going into our all-inclusive regions, in Mexico and the Caribbean and business being somewhat flattish but continuing to not get worse than that, but be strong and our corporate customers really saying, they want to travel. They want to continue to travel. It's just -- that's the 1 customer segment where we don't have as much visibility because of the booking windows and then group remains healthy. So core business remains very, I think, encouraging, and we saw the first couple of months of this year continuing on the path with respect to all the customer segments. Now the events, so the war in Iran and the impact to the Middle East, we reported from a -- well, first off, from a guest and customer safety and well-being, we spent the first couple of weeks since the war started, making sure that everybody was safe and that their well-being was taken care of. We had a actual fully occupied hotels in the region because for that reason, for what we have to do in the communities that we operate. And we've got very tenured folks managing these hotels who know exactly the playbook that you need to follow when there's this kind of events happening in their community and in their country and region. So that was what we saw. It's a very fluid situation. We have seen occupancy levels go down as people have -- whether they were -- whether they're traveling outside of the country and getting to their homes and obviously, less travel inbound. Now it's about, on an annual basis, our fee revenue from this part of the world is less than 5%. So impact to the business from a macro perspective is not as significant but it's a big travel hub. So we're watching that, and we'll see the duration. There's been different messages that have been shared about that and speculation. So we don't know yet. So we'll stay very close to it and monitor the situation and our teams on the ground will continue to do what they know what they need to do to take care of any guests and obviously, our colleagues in the region. And then just a point on Mexico...

Right. That was going to be my...

So we -- after what had happened in Puerto Vallarta that was like now 3 weeks ago, I think. We did see actually some impact and some cancellations happening right away. I think there was a little bit of anxiety around traveling to that region, Mexico, in particular. And we've seen that -- that was a quick impact and a short term from a window perspective. And we've seen that plateau. And recently, in recent days, we've seen actually bookings come back up. So the other point I would raise about the region is that when people have made their commitment to travel there, they -- when rebooking or changing, we have a lot of resorts and -- in a lot of locations in the region, in Mexico and the Caribbean and in the U.S. where people are rebooking. So we're seeing that behavior taking place. So there's offsets as people are committed to their spring break vacation in the month of March, in particular, and as they look forward. So again, the safety and well-being has been the focus at the beginning, taking care of our guests to make sure that their vacation plans get taken care of and I think we're seeing things now improve from a booking pickup perspective. It will take some time. And again, that will be something that we update all of you on our first quarter earnings call as far as impact.

Yes, I think generally, the quarter has played out differently than we expected in terms of where business is coming from and going to but the overall shape of the quarter is not too terribly dissimilar to what we talked about on the last call. So we'll see how the next 15 days go and then like Joan said, have more to share about the rest of the year in a couple of weeks.

What were -- I mean, we talked a lot about the negatives, but some of those kind of near-term bright spots. Obviously, you mentioned you've seen rebookings within the system? What are the other kind of areas where you've seen maybe things trend a little bit better than you maybe had originally anticipated.

I mean the U.S. looks solid. I think when we were thinking about the shape of the year during our last call, recognizing that the first quarter last year for both the U.S. and globally was our strongest quarter of the year, especially from a RevPAR standpoint, there was sort of an expectation that given the tougher comp, Q1 would probably be the more difficult quarter for the U.S., especially knowing some of the bigger events taking place this summer. And I think you obviously see the Star Data U.S. performance, especially within luxury and upper upscale where we have a lot of exposure has been solid. So I think that's helped offset some of the near-term headwinds that we've seen. And then when you go to other parts of the world, especially Asia, performance has been very good, and Europe continues to be a bright spot. I mean Europe has been incredible just given how strong performance has been for the last couple of years. So it's the benefit of obviously being globally diversified both across location and chain scale. So yes, we'll see where the year goes.

And then as you think about kind of the segments, the group, right, business transient, leisure and -- leisure has been very strong for you. It sounds like it continues to be resilient. Are you seeing any kind of real evolution in terms of group versus business transient? And then on the leisure side, stimulus, is that something that has shown up? Are you anticipating it to show up? And could that be impactful?

So maybe I'll just start on the consumer. We are -- we operate and serve the high-end consumer in each segment that we operate. So that consumer has been very, very resilient and has said they intend to travel and spend a large part of their scretionary income on travel, and that's exactly what they've done. And we've seen nothing that has impacted those numbers. When you look at our results and you look at them by chain scale, you can see a very stark differentiation between luxury upper upscale results and what we've seen on the upscale and upper midscale, which even those segments have been flattish to slightly up. With our luxury and upper upscale growing in the mid-single digits and maybe even higher than that in some quarters. So it's definitely been a difference of consumer base, even for us, but 2/3 of our existing rooms are in the upper upscale and luxury. So that has led to higher RevPARs and higher growth rates for us consistently for -- basically for a decade. So we continue to outperform and that is because of the guest base that we have and the health of that consumer. And then on the business transient side and group side, We, again, are serving high corporates, the top 10 consulting companies and other highly prolific travelers from a corporate spend perspective. And they are also -- I mentioned group earlier that is healthy. This is because of that -- also that corporate customer base that we have that is bringing people together, seeing the value of groups coming together and we're realizing those benefits.

Yes. The other thing, as you really think about Hyatt and how we differentiate ourselves is the all-inclusive portfolio that we have, really, we feel is a great indicator of the health of the luxury leisure customer. And whether you look at the performance of our net package RevPAR in 2025 or the pace that we talked about heading into the year, really a strong, resilient segment for us that's outperformed even the sort of traditional luxury segments that we serve. So I think there's good proof points that the luxury customer, the higher income demographic customer is prioritizing travel the way that they have been for really the last 5 years and probably even before that. And our positioning really sets us up in a way that's differentiated that allows us to have a lot of success.

Can we move a little bit to the development side, your 6% to 7% unit growth I mean, I guess, you're a big player, but not the biggest. So you're growing at this elevated pace. I mean how sustainable is that? And to what extent do you feel like you have a differentiated unit growth strategy than some of your peers?

Well, let me start first on what we've accomplished over the course of the transformation that we've made where we've realized proceeds from assets that we've sold and reinvested. And over that course of that time between inorganic and organic growth, we have, and keep me honest here, Adam, we have doubled to almost tripled the size of our luxury portfolio. Our resort portfolio has tripled our lifestyle portfolio has grown by 5x. So we have actually grown in segments that our existing customer base is wanting to travel to. And we've been very intentional about that growth strategy. We've looked towards those markets and segments like all-inclusive as part of that resort growth that we've had. And we've built a distribution that is very attractive to our existing World of Hyatt members who are really important to us, obviously, and have brought in new members into our into our program into our loyalty program. So in growing in that intentional way and looking at the acquisitions that we've made in that way that we can actually create a more effective network effect, that has made us even more attractive to developers and owners because they see that our membership base is so highly qualified and that, joining our system actually will enable better performance for them for their hotel. So our conversions have been very successful because of that, because developers have been drawn to the portfolio and to the customer base. So that has helped us as we've grown over the last 10 years to be even a more attractive place for developers to convert into. Maybe, Adam, you want to cover the upper mid-scale and the growth there?

Yes. I think -- because we get a lot of questions about, well, you're positioned towards a high-end customer, 70% of your rooms are luxury, upper upscale, so why upper mid-scale. And the answer is, is we're going where our customer is going when they're not staying with us. So we did a lot of research on customer spend behavior a couple of years ago and found that in, I think it's 3/4 of the instances where our members were not staying with us, and they were staying with another hotel company they were staying in locations where we didn't have a hotel within 5 miles. And the reason we didn't have a hotel in most of those locations was because we didn't have a brand that could be built, that could be supported by the price point of that market. So if you think about going into a secondary or tertiary market, a Hyatt Place might not be able to deliver the returns for an owner that an upper mid-scale brand could. So we launched Hyatt Studios, which is our extended stay upper midscale brand in 2023. Last year, we launched Hyatt Select, which is our transient upper midscale brand. And so really finding a way to engage with our customer base and our members in a deeper way, also meeting new members along the way which just gives us that much more ability to grow in a way that positions us for the future because where we have so much domestic white space really is in the secondary and tertiary markets. So if you think about a business traveler, who might stay at the Park Hyatt in New York when they're there for a meeting. They may also be going to a secondary market to visit a store or a factory. And so it's not that they don't want to stay with us. It's that they don't have a location to stay with us and they will now in the future. So if you sort of think about our brand portfolio, it's really 1 customer with a lot of different purposes of visits, whether it's a luxury stay, that's personal, you're going with your spouse or your partner versus an all-inclusive vacation where you're taking your family or maybe a fun get-away for a lifestyle opportunity, Hyatt Regency or Grand Hyatt for a group meeting like this or going to a Hyatt Select to stay, while you're traveling for business. It's making sure that we've got brands and purpose of visit for every stay occasion.

So I think that both dimensions, we are really, really excited about the future opportunity for our continued growth. And if you -- we have a couple of slides in our investor presentation that we post every quarter that shows the opportunity that we have because of our lack of penetration and distribution in many markets around the world, yet when you look at the top markets, the hospitality markets, travel markets, we're in every single 1 of those. It's just about the depth of our penetration. And so the opportunity for us to grow across all the segments is really compelling.

You've targeted a 90% asset-light mix. We're not quite there today. Are we getting there organically? And then to what extent is their appetite to do another a Playa-esque deal comes across your desk? I guess, how -- what degree of confidence can we underwrite getting that 90% within a couple of years? Or is this where you continue to be opportunistic to the extent there is something like that out there?

Okay. So let me unpack that because I think the first piece on the 90%, we have confidence that we are going to achieve that this year with our results this year. And that is as you mentioned, Dan, it is organic. It is as we grow our fee-based business, which last year grew at a 9% rate, very strong on the core business front, and our range for this year, you'll have to remind me, Adam, is between...

6% and 8%, I'm looking at Ryan. It's very solid.

Fee-based growth this year as well, and that is what we'll add to and gets us to the 90% -- 8% to 11%.

8% to 11%. Thank you.

Thank you, Ryan. So that is what will lead us to the 90%. Now another sell down is something we get asked. We are not making a formal commitment, but we have been very, very clear that we continue to sell assets. We expect to sell into strength we've realized great returns from the assets that we've sold, the $5.6 billion that we've sold over the last 8 years at a 15x multiple. So we will continue to sell into strength and take advantage of opportunities to develop strategic relationships with potential buyers. So that is a focus of ours and that will continue to increase that mix over time as that is appropriate as we look at the strategy, the disposition strategy that we have going forward. On your -- with respect to your question about Playa, our -- as we think about capital allocation and we think about the growth of the company and all the opportunities that Adam and I just went through as far as how we grow. This is a focus of ours. We want to continue to grow. We want to continue to invest in growth. We do not anticipate anything of any material size but there are opportunities, portfolios. It's a global fragmented market still, and we still have for the reasons we described about our customer base and our existing footprint and our opportunities to the fact that we're not overly penetrated in markets. For all of those reasons, we have great opportunities to continue to invest in growth, and that will be the priority. It will be asset-light growth. So Playa...

Asset-light in terms of buying and selling or asset-light at the onset?

That is the goal. Playa was a really unique opportunity for us to really control and convert some contracts that we were already franchising, brands that we were franchising into management contracts and knowing the space that we did. We had a fantastic execution last year by ending up with buying and selling the real estate. That was quite unusual and not something we intend to do again.

Okay. The -- in terms of the distribution business, I mean, this has been -- I think -- well, let's take a step back. You've gone to great lengths and had a pretty good success in terms of simplifying the business getting rid of some of the [ Harrier ] stuff out there, the UVC stuff. And here we are and it seems like distribution that segment has been kind of the sore spot or the headache. I mean how do you think about that business, the opportunity there, some of the interruptions and how much of this is a one-off? And how should we think about the growth trajectory for that going forward?

So we've always been very clear that when we acquired the business, we recognized fully, and I'm talking about the broader ALG business in 2021. This was 1 part of that, it's a business that existed within the entire platform and what it delivers to our all-inclusive business and our all-inclusive owners is a very, very strategic lever that we can use to actually drive business to our hotels. It is a distribution channel that they have the opportunity to tap into, and they're delivering 15% of the inventory from the U.S. consumer because they are the largest distribution channel driving business into Mexico and the Caribbean. So this is under our ownership, and there's great value to a very big part and an important part of our leisure presence, and our U.S. customer from this business. So the important thing to know about the distribution ALGV, ALG Vacations is that it also serves not just 5-star, which is our properties in the Mexico and Caribbean market but also the 4-star properties. So as most of you know, the differential between the demographic and what we're seeing in demand in the different categories is different. So about 50% of the customers that they serve are in each category, 5-star or 4 star and below. So when we see some pressure, this is the temporary pressure that we all believe will ease coming from that demographic of consumer that we're just seeing smaller or lower demand levels. So that's the reality of the business but it's highly strategic, actually provides us a lot of data about what the U.S. consumer, the leisure consumer is doing and where they're going. So there's multiple dimensions of strategic value that it provides to us. One other thing that I'll mention is that we have talked and we talked publicly about the fact that we would be open to some sort of very strategic relationship potentially with this business, but that would have to be -- it's a very careful consideration and we would still want to preserve all of the strategic value that we've benefited from and our owners have benefited from. So we'll keep you posted over time, if there is something that looks that could be beneficial with respect to a partner that could help us amplify the impact that we're providing for the business and for our owners.

Yes. The other thing I would add on this is -- and you're right, it's a piece of the business that we get a lot of questions about there's a focus on don't lose sight of the fact that the vast majority of our business has outperformed for the better part of a decade relative to others, whether it's having the highest RevPAR growth in 9 out of the last 10 years, having industry-leading net rooms growth for 9 years in a row, the fact that our organic fees have grown close to 8% since 2017 since we started the transformation. Like there is a story here about the quality of our fee business that I think sometimes gets missed because there's this hang up on a very small but strategic piece of the business. And so I just would invite folks not to forget about the core business and how well it has performed and how well we think it can continue to perform given the way we've positioned ourselves.

Okay. Let's turn to kind of another ancillary but a bright spot, the credit card deals. So you announced a credit card deal late last year. I think more recently, you announced a new credit card with that program a higher -- I saw it on a forum. So...

We don't believe what you read on the forums, nothing has been announced yet.

Disregard. So I guess what are the levers there as you think about upside over time in terms of the credit cards bearing in mind you gave numbers and they're out there but what are the kind of the variable pieces as we think about kind of the growth rate?

Yes. I think the 2 most important pieces are, having a really strong customer and consumer base that spends on the card, which we know we have as well as making both the loyalty program and the benefits of the card attractive to have more card members over time. So I think those are the 2 pieces where we believe we have the ability to deliver and have results that are in line with what we've talked about previously and maybe even better as we go forward. And then when you think about different opportunities that are out there, you alluded to the fact that we don't have a premium credit card, I think that's certainly something that our customer base would find really attractive. So that could be a way to add to how we think about the upside opportunity going forward. Obviously, there's the ability to add more card product in other locations besides the United States that we don't currently have. So those are all great opportunities that we have. But ultimately, it really does start with having great brands, having a wonderful loyalty program that offers great benefits to our members and to prospective members. And if you do those 2 things really well, it will attract more members to the program as well as more consumers that are interested in signing up for the card, which benefits us over time. So we really try to think about these pieces holistically and not 1 by each.

If we pivot to AI, right? That's obviously been incredibly topical, and I'm sure you guys have a lot to say there. I guess as we sit here today versus 3 months ago versus a year ago, what has been the areas of greatest surprise and what most excites you about this opportunity, whether it's a distribution side or even some internally for the cost stuff.

It has -- wholly excites us, and we've been working on it. I would say we've been working on it for years, actually. And it starts with being a company that's focused on data insights and that driving decision-making. And so in order to do that, you have to have great data and you have to invest in your data and have structures that enable your teams for a global large company to be able to tap into that resource. Now 2 years ago, and Mark mentioned this actually that we've been working on it for 2 years, and he's been leading at Mark, our CEO, has been leading this effort on our capabilities with respect to AI across the company. And what we did is, at this time, as we looked at all of our opportunities and there was dozens and dozens, and we focused on a few that were revenue generating because we said this is going to have the biggest impact to the business, and it's the best place for us to really focus because we have this great platform with respect to our data and our structures, we could go fast. And we had to just build our capabilities internally and gather the high talent, scientists, engineers, all of that in-house to start experimenting and using practices to develop where that most and greatest opportunities are. You mentioned distribution, for sure, it's in distribution. We just launched an app within ChatGPT. So if you go into your ChatGPT app, you can go and download the Hyatt App. And you can use that generative technology that most people are familiar with and actually search in the way that you're comfortable searching for your next trip with Hyatt. Oftentimes, it's for leisure but could be for any purpose of visit and we're 1 of the first hotel companies that have done this. So we're pushing forward. We're focusing and we are finding opportunities to be more efficient, and a lot of that is powered by different types of AI application to invest in the technology that's going to help our hotels and increase their performance. So this comes from engaging in the way that people and our guests want to engage, delivering higher conversion at a lower cost to our owners. And the flywheel can accelerate from that type of investment and that type of focus. So what I would say is I provided 1 example, but there's multiple examples that we're working on. And this is where to a large degree, our focus is giving us an advantage, but also our size is giving us an advantage because we can do this quickly, and we've proven that. And so we'll continue to do that. And some of these -- the realization of some of these benefits are quite competitive. So we don't want to share all of them. But over time, as we see all of them have an ROI, and we will be sharing that with you over time.

Okay. One last 1 before we open it up to the floor. Asset sales, that's been so -- billions of dollars of assets over time. I think there's still...

$5.6 billion to be specific.

What's the multiple?

Come on, you haven't memorized yet?

No, I know that. I was [ tee-ing ] you guys up. So I guess, where do we sit today in terms of that asset transformation, not the 90%, but more kind of like what's still do you have left to sell? Is it U.S. stuff? Is it international? Kind of how are you thinking about the asset still left to go, so to speak?

Yes. I mentioned earlier that we have to -- in order to realize those values that we just described, we've had to be very strategic about how we look at the actual products itself, the assets we have and selling into strength, whether that's that market or that demand profile. And there's certainly opportunities for us to turn to. We do have a lot of luxury high [ cash ] assets in our own portfolio. So those create really unique opportunities for us to engage with strategic buyers that maybe we could do something even bigger with potentially. So if a buyer were interested in an asset and they had a portfolio of luxury assets, potentially it could be even a bigger relationship. So I think that's how we are approaching it because we recognize that we've invested in these assets. They're very, very high quality, high performing. So we will take a very thoughtful approach to make sure we're maximizing shareholder value. And of course, those proceeds would be -- well, it would be prioritized into growth opportunities, but excess cash would definitely be a buyback opportunity.

Great. We'll open it up to the floor for questions Okay. All right. I think that's all we got. Thank you so much.

So thank you so much, Dan.

Thanks, everyone.

Thank you.