Yahoo Finance Hyatt Hotels Corporation (NYSE:H) Q1 2024 Earnings Call Transcript
Hyatt Hotels Corporation (NYSE:H) Q1 2024 Earnings Call Transcript May 9, 2024
Hyatt Hotels Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, and welcome to Hyatt's First Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Adam Rohman, Senior Vice President of Investor Relations and FP&A. Thank you. Please go ahead.
Adam Rohman: Thank you, and welcome to Hyatt's first quarter 2024 earnings conference call. Joining me today are Mark Hoplamazian, Hyatt's President and Chief Executive Officer, and Joan Bottarini, Hyatt's Chief Financial Officer. Before we start, I would like to remind everyone that our comments today will include forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K, quarterly reports on Form 10-Q, and other SEC filings. These risks could cause our actual results to 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. Please note that unless otherwise stated, references to our occupancy, average daily rate, and RevPAR reflect comparable system-wide hotels on a constant-currency basis. Additionally, percentage changes disclosed during the call are on a year-over-year basis unless otherwise noted. With that, I will now turn the call over to Mark.
Mark Hoplamazian: Thank you, Adam. Good morning, everyone, and thank you for joining us today. We are pleased to report that the year is off to a great start, demonstrating high-quality growth across multiple dimensions and expanding fees from all areas of our asset-light business. Let's start with the latest trends that we're seeing. System-wide RevPAR increased 5.5% in the first quarter and travel across all customer segments remains very healthy. As anticipated, the timing of Easter compared to 2023 positively impacted leisure travel in March and negatively impacted group and business travel. Leisure transient revenue increased 7% in the first quarter due to strong demand over spring break and the week leading into Easter.
As expected, leisure transient revenue was negatively impacted in April due to the timing of Easter. While we expect year-over-year growth rates to moderate, we are significantly above pre-pandemic levels and are not seeing signs of consumers reducing their leisure travel. For example, pace for our all-inclusive resorts in the Americas is up approximately 4% for the second quarter, led by the Cancun market. Meanwhile, group room revenue increased approximately 6% in the quarter with strong performance in January and February. We anticipate solid contribution to RevPAR from group in the second and third quarters of 2024, and the second quarter is off to a good start with April up 14% compared to last year. We expect another solid year of demand for group meetings and events with group pace for us full service managed properties currently up 7% for May through December of 2024.
Finally, business transient revenue increased approximately 6% in the quarter with strength in both January and February, and we saw similar trends in the U.S., a clear sign that business travel continues to recover. April was up 21% globally compared to 2023 and we remain optimistic about business transient's positive contribution to RevPAR growth over the last three quarters of 2024. Turning to our loyalty program, World of Hyatt membership grew 22% over the past year, reaching a new high of approximately 46 million members at quarter-end. Loyalty room night penetration increased in the quarter, highlighting the strong engagement of our expanding membership base, which is highly valuable because our members stay longer, they spend more, and they book through Hyatt channels.
I'm also thrilled to share that more than 700 Mr & Mrs Smith boutique and luxury hotels and villas around the world are now available through Hyatt channels, including World of Hyatt. We now have more than twice the number of properties previously available through our alliance with small luxury hotels with offerings in 25 additional countries and hundreds of new markets. We expect to have approximately 1,000 Mr & Mrs Smith properties available through Hyatt channels and World of Hyatt by the end of this year. We are also establishing relationships with Mr & Mrs Smith hotel owners, and we expect this will lead to potential opportunities to expand our direct engagement with those owners. Last week, we announced the collaboration with Peloton to reward our members for prioritizing their well-being.
This collaboration joins Hyatt's expansive roster of global well-being programming, further differentiating World of Hyatt from other hospitality loyalty programs. Finally, World of Hyatt received several accolades during the quarter, including being named the Best Loyalty Program for Hotels and Hospitality rewards by Newsweek and Best Hotel Rewards Program and Best Credit Card Benefits by NerdWallet. Additionally, 55 Hyatt properties were recognized by Forbes Travel Guide 2024, and 355 Hyatt properties were recognized by U.S. News & World Report's hotel rankings. These continued recognitions, in addition to the loyalty program's growth, is driving higher room light penetration and greater owner preference for our brands. Turning to development, we are realizing the benefit of greater owner preference through the continued expansion of our pipeline.
Our pipeline reached a new record of approximately 129,000 rooms, a 10% increase year-over-year, and represents approximately 40% of our existing room base. We signed contracts across our brand portfolio, including luxury and lifestyle brands such as Park Hyatt, Andaz, and Thompson Hotels, and have further strengthened our upper mid-scale pipeline, including our UrCove and Hyatt Studios brands. There are now 40 UrCove hotels open in China with approximately 75 in the pipeline. And in the year since we announced Hyatt Studios, we have around 250 hotels in various stages of negotiation. Today marks another milestone for Hyatt Studios as we celebrate the groundbreaking of a second property, Hyatt Studios Huntsville, which is expected to open in late 2025.
Our record pipeline is translating into an expanded global footprint, and in the quarter, net rooms growth increased 5.5%. Notable openings include Thompson Houston, Secrets Tides Punta Cana, Secrets Playa Blanca, Costa Mujeres, multiple UrCove properties in China and Hyatt Regency Nairobi Westlands, our first hotel in Kenya. We remain focused on enhancing our network effect by expanding our offerings in new markets and across more price points for our guests and customers. The first quarter demonstrates this with new lifestyle resorts and upper mid-scale hotels added to our portfolio. Turning to transactions, we have several updates to share on asset sales, but first I want to cover an important transaction that was completed in the quarter with an existing joint venture partner in India.
The relationship with our partner dates back 40 years when they developed the first Hyatt Hotel in India, and 20 years ago, we formed a 50-50 joint venture, Juniper Hotels, with this partner to develop hotels in India. Today, the Juniper portfolio is made up of six Hyatt hotels, including the iconic Grand Hyatt Mumbai and Andaz Delhi, each of which also has branded residences. In February, Juniper Hotels completed an initial public offering on the BSE Limited and National Stock Exchange of India, successfully raising capital representing approximately 23% of the company. The current equity value of our stake in Juniper Hotels is close to $475 million, and we are confident the current value of our joint venture exceeds any sum-of-the-parts analysis or historical assessments of value of our joint venture interests.
One other benefit of the IPO is that Juniper Hotels paid down third-party debt, relieving Hyatt of a substantial debt repayment guarantee. In addition to creating significant shareholder value, this joint venture relationship has allowed us to enhance our strong brand reputation in India, leading to over 100 open and pipeline hotels in the country. Turning to asset sales, in addition to closing the sale of Hyatt Regency Aruba on February 9th, which we announced during our fourth quarter 2023 call, we have several updates to share. We completed three separate transactions, selling Park Hyatt Zurich on April 4th, Hyatt Regency San Antonio on April 23rd, and Hyatt Regency Green Bay on May 1st for combined proceeds of $535 million at a 14.7 times multiple.
We retained long-term management agreements at both Park Hyatt Zurich and Hyatt Regency San Antonio and a long-term franchise agreement at Hyatt Regency Green Bay. In connection with the sale of Park Hyatt Zurich, we provided $45 million in seller financing. In addition to realizing great value for these assets, we will avoid approximately $40 million of capital expenditures over the next few years. Although the transactions environment has been uneven, we have once again proven our ability to transact with a variety of different buyers, and in the case of Hyatt Regency San Antonio, complete an all-cash transaction. We also signed a purchase and sale agreement for an asset that, upon closing, would yield cumulative gross proceeds that exceed the $2 billion asset sell-down commitment.
Finally, we remain in the marketing process for another asset we previously mentioned. We have realized $1.5 billion of gross proceeds from the net disposition of real estate since our $2 billion commitment announced in August of 2021, including the three asset sales completed during the second quarter at a total multiple of 13.3 times. We remain confident that we will complete the remaining portion of our disposition commitment before the end of this year. In closing, we are pleased with our operational execution in the quarter and forward-looking indicators are positive across all customer segments. The significant progress that we have made selling owned assets increases our asset-light earnings mix, which we expect will exceed 80% on a run rate basis once we complete our $2 billion disposition commitment.
We remain focused on expanding our network effect and our growth across multiple dimensions, including rooms, fees, pipeline, and loyalty membership. This is leading to strong free cash flow and increased shareholder value. Before I conclude my remarks, I want to say how proud I am that Hyatt was named one of the 100 best companies to work for by Fortune and Great Places to Work. This marks the 11th year in a row that Hyatt has received this recognition and we are honored to be one of the longest ranked hospitality companies on the list. Our purpose to care for people so they can be their best guides us every day and gives me confidence in our ability to deliver great results into the future and to continue to create value for our shareholders.
Joan will now provide more details on our operating results. Joan, over to you.
Joan Bottarini: Thanks, Mark, and good morning everyone. Before I begin, I'd like to remind everyone that our first quarter results reflect our three new reportable segments, management and franchising, owned and leased, and distribution. First quarter 2023 results that we published in our earnings release this morning have been recast to reflect our new reportable segments. Selected recast historical financial information is available on our Investor Relations website. As Mark mentioned, first quarter system wide RevPAR increased 5.5%, led by growth across multiple international markets. This growth was fueled by 21% RevPAR growth in Asia-Pacific, excluding Greater China, which benefited from strong outbound travel from Greater China to markets including Japan, Thailand and South Korea.
In Greater China, RevPAR increased approximately 12%, aided by easier comparisons to the first quarter of 2023 during which COVID restrictions were lifted. RevPAR growth in the Americas excluding the United States increased approximately 12%, a result of strong leisure demand in Mexico and the Caribbean. We also saw similar results at our all-inclusive properties in the Americas with net package RevPAR growth of 10% for the quarter. And moving to Europe, RevPAR increased 10% due to exceptional performance in southern and eastern Europe. Our European all-inclusive properties produced impressive net package RevPAR growth of approximately 25%, driven by high demand for our resorts in the Canary Islands. And finally, in the United States, RevPAR was up approximately 2%, excluding the impact of Easter, reflecting normalized growth.
We reported record gross fees of $262 million, up 13% due to a combination of our RevPAR growth, greater system size, and an increase in our non-RevPAR fees. Franchise and other fees increased 21%, driven by the expansion of our franchise footprint and increases in co-brand credit card fees and UVC fees. Incentive fees increased 16%, excluding foreign exchange headwinds in Mexico due to greater contributions from international hotels. Base fees increased 8%, reflecting a combination of increased managed RevPAR and fees from newly opened managed hotels. In total, management and franchising segment adjusted EBITDA increased approximately 10%. Moving to our owned and leased segment, adjusted EBITDA for the quarter decreased by 9% when adjusted for asset dispositions.
We faced difficult comparisons versus 2023, including lapping the Super Bowl, which benefited Hyatt Regency Phoenix, as well as the timing of Easter, which negatively impacted group revenues across our U.S. owned portfolio in March 2024. Compared to the first quarter of 2023, adjusted EBITDA was also negatively impacted by higher real estate taxes, increased wages in certain markets and transaction costs associated with asset sales that closed after the first quarter. Our expectations continue to be that we will achieve flat to moderate expansion of owned and leased margins for the full year, maintaining ongoing margin expansion relative to 2019. Finally, our distribution segment's adjusted EBITDA reflects Hyatt's ownership of UVC through the sale of our majority interest on February 14th of 2024 as well as full-year ownership in 2023.
First quarter 2024 results include $6 million of adjusted EBITDA losses for our period of full ownership of UVC before the transaction closed. The distribution segment's adjusted EBITDA declined $19 million compared to the first quarter of 2023, as ALG Vacations lapped a very strong first quarter last year. These results are consistent with our prior public statements as our expectations relating to year-over-year headwinds for ALG Vacations. Overall total company adjusted EBITDA for the quarter was $252 million. Compared to last year, adjusted EBITDA increased approximately 3% when excluding transactions, the impact of foreign exchange and the headwind from ALG Vacations. Our core management and franchising business delivered outstanding results led by RevPAR and net rooms growth.
The owned and leased portfolio lapped challenging comparisons in the first quarter, which we do not expect will continue through the remainder of the year. Now moving to liquidity, as of March 31st, 2024, our total liquidity remains strong at $2.3 billion, including approximately $1.5 billion in borrowing capacity on our revolving credit facility. At the end of the quarter, we reported approximately $3 billion of debt outstanding. We remain committed to our investment grade profile and our balance sheet is strong. During the first quarter, we returned over $400 million to shareholders inclusive of dividends and share repurchases. We repurchased approximately 2.5 million shares of Class A and Class B common stock for an aggregate purchase price of $388 million.
The company's Board of Directors has authorized a $1 billion increase to our share repurchase authorization, and we now have approximately $1.8 billion available. Now I'd like to review our 2024 outlook. After adjusting for the impact of transactions, we are reaffirming our outlook for the full year that we provided during our fourth quarter earnings call. We expect full-year system-wide RevPAR growth between 3% and 5% compared to 2023. We expect group and business transient customer segments to contribute meaningfully to overall RevPAR growth and leisure transient to grow compared to 2023 at a moderate growth rate. We anticipate U.S. RevPAR growth around the lower end of our global outlook, while RevPAR growth in our key international markets exceeds the high end of our range.
We expect net rooms growth between 5.5% and 6%, driven by both organic growth and conversions. Gross fees are expected to be in the range of $1.1 billion to $1.13 billion and adjusted G&A is expected to be in the range of $425 million to $435 million. For adjusted EBITDA, our updated outlook of $1.15 billion to $1.19 billion reflects a $30 million reduction at the midpoint due to transactions, including the three asset sales in the second quarter that Mark mentioned as well as the adjusted EBITDA losses from UVC prior to closing the transaction. Free cash flow is expected to be in the range from $575 million to $625 million, including the $30 million reduction to adjusted EBITDA and $25 million of cash tax payments relating to the three asset sales.
Finally, we are raising our outlook for capital returns to shareholders to a range of $800 million to $850 million, including share repurchases and dividends. We'll update our outlook as additional asset sale transactions close. The full details of our outlook can be found on page three of our earnings release. Additionally, we published a revised earnings growth model this morning, which can be found on our Investor Relations website on Slide 11 of the investor presentation. I'll conclude my prepared remarks by saying we are very pleased with our first quarter results. Our teams have delivered outstanding results, which we believe demonstrates our unique positioning and differentiated model. We're excited about the remainder of this year and continuing to execute our strategic vision.
Thank you. And with that, I'll turn it back to our operator for Q&A.
See also
25 Countries with the Lowest Home Ownership Rates and
16 Biggest Publicly Traded AI Companies in the World.
To continue reading the Q&A session, please click here.
