Q4 2022 Hyatt Hotels Corp Earnings Call

Good morning, and welcome to the highest fourth quarter and full year 2022 earnings call.

After the Speakers' remarks, we'll conduct a question and answer session to ask a question you will need to press Star then the number one on your telephone keypad.

If you require operator assistance at any time, Please press star zero.

As a reminder, this conference call is being recorded.

I would now like to turn the call over to Noah Hobby Senior Vice President Investor Relations. Thank you. Please go ahead.

And good morning, everyone. Thank you for joining us for Hyatt's fourth quarter and full year 2022 earnings Conference call. Joining me on today's call are Mark <unk>, Hyatt's, President and Chief Executive Officer, and Joan Battery types, Chief Financial Officer before we get started I would like to remind everyone that our comments today will include forward looking state.

<unk> 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.

<unk> 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 <unk> Dot 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 Darla and good morning, everyone and welcome to the highest fourth quarter and full year 2022 earnings call.

I'd like to begin today by thanking all 189000 members of our Hyatt family for their remarkable contributions to a truly transformative year.

We successfully navigated a rapid revpar recovery that was unlike anything we've previously experienced.

We have successfully integrated Apple leisure group and made meaningful progress toward our asset disposition commitment.

We also led the industry in organic growth for the sixth consecutive year.

These achievements are a direct result of the extraordinary efforts and thoughtful execution by our Hyatt family members and I'm honored.

To lead such an outstanding team, who is guided by our purpose to care for people. So they can be their best.

Our financial results also reflect the considerable achievements of our team.

We concluded the year with another record breaking quarter, bringing our full year adjusted EBITDA to $908 million plus.

Plus $94 million of net deferrals and $63 million of net finance contracts with some of these three numbers more than 40% above the adjusted EBITDA, we generated in 2019.

The record level of earnings and free cash flow that we achieved in 2022 is primarily the result of successfully executing on two key elements of our strategy.

Optimizing capital deployment and investing in new growth platforms.

This strategy was first outlined approximately five years ago.

<unk> included a commitment to realize proceeds from the sale of owned real estate assets.

And prioritize the reinvestment of those proceeds into asset light growth platforms to accelerate our fee based earnings broaden our portfolio.

And enhance guest connectivity to Hyatt.

The execution of this strategy has been nothing short of remarkable.

Over the past five years, we realized proceeds of approximately $3 8 billion from the sale of owned hotel real estate net of hotel acquisitions.

And we invested approximately $3 $6 billion to acquire three platforms Miraval, two roads hospitality and Apple Leisure group.

And during this five year period, we also returned $2 billion to our shareholders through common stock share repurchases and dividends.

The comparison of the assets that we sold versus the platforms that we acquired is notable for a few reasons.

First the earnings contribution in 2022 from our acquisitions was nearly double the earnings that we lost from our asset dispositions.

More specifically the implied adjusted EBITDA multiple from the $3 $8 billion of real estate that was sold was over 16 times, while the earnings multiple applicable to the $3 6 billion and platforms that we acquired was approximately eight times.

Second.

The capital investment needed to maintain the assets that we sold compared to the platforms that we acquired is significantly different.

Owned real estate that we sold was estimated to need on a run rate basis, approximately $130 million in capital expenditures per year.

While by comparison, the three platforms that we acquired which are predominantly asset light.

<unk> needed only $40 million of capital expenditures in 2022.

So not only do we nearly double the earnings profile, but we also reduced the run rate of our capital expenditures by approximately $90 million per year.

The success of this strategy is reflected in both the transformation of our cash flow from operations and our capital expenditures, which resulted in free cash flow of $473 million.

A number that is nearly 50% higher than any previous year in heights history.

It's important to also note that this record free cash flow was achieved in 2022, while revpar was below 2019 levels and includes approximately $55 million in cash taxes paid related to our real estate dispositions.

Beyond the impressive transformation and free cash flow. Our strategy is also greatly accelerated both our fee based earnings and our growth.

Let me walk you through a few areas that highlight this.

First for each of the 19 hotels that we sold in the past five years, we've maintained a long term management or franchise agreements.

As a result, we've retained approximately $40 million and run rate fees per year, representing a durable future fee stream and this amount is not included in the asset sale multiple valuation.

Second we have been successful in integrating and scaling the platform. We acquired as a result, these platforms are 17% larger today as compared to when we acquired them and have a significant pipeline of 18000 rooms to fuel further growth for years to come.

Third these platforms have significantly elevated the quality of our portfolio, helping us to better super serve the high end customer.

And only five years, we doubled the number of luxury rooms tripled the number of resorts and quadruple the number of lifestyle rooms in our portfolio.

And we now have more luxury branded hotels in resort locations than any other hospitality company in the world.

As a result of our transformed portfolio, which is largely due to the platform. We acquired we've been able to drive increased loyalty from our guests as evidenced by world of Hyatt membership increasing from 10 million members to 36 million members during the past five years.

Looking ahead I am excited about our continued momentum.

We have $1 3 billion remaining under our current real estate disposition commitment and we are intent on fulfilling this commitment by the end of 2024.

Additionally, we will continue to seek out compelling asset light platforms that expand our portfolio and have embedded growth, while providing unique experiences for our guests.

Our prime illustration of our strategy in action is our recent acquisition of Dream Hotel group, a leading lifestyle portfolio focused on vibrant dining and nightlife experiences that we closed on February 2nd.

This deal builds upon highest industry, leading portfolio of higher end lifestyle brands, adding 12 hotels and more than 7500 rooms, and 24 signed long term management agreements that we ultimately expect will grow highest lifestyle room count by more than 10%.

This asset light acquisition broadens our reach into a younger demographic provides a.

Differentiated experience for our guests and expands our presence in New York City by 30%.

In summary, I'm incredibly proud of how we've executed on our strategy over the past five years and look forward to continuing this momentum into the future.

Turning to our growth I'm thrilled to report full year net rooms growth of six 7%, which was driven by a record level of organic hotel openings.

Despite a challenging supply chain and labor environment, we were able to add 120 hotels to our portfolio, 20% more than our previous record year in 2021.

With luxury lifestyle or resort properties composing 66% of the rooms that we added.

We've been expanding in these areas at an impressive rate as I mentioned, a moment ago with nearly 135000 luxury lifestyle and resort rooms, now part of our portfolio a number that is larger than the entirety of our portfolio just a decade ago.

We also feel great about our prospects for our future growth.

Our pipeline ended the year at an all time high of 117000 rooms, bolstered by a robust year of signings that more than offset the impressive pace of openings.

Moving to our latest business trends comparable system wide Revpar was up two 4% compared to 2019 levels in the fourth quarter were up six 6% when excluding greater China.

Rates remained strong up 14% above 2019 levels during the quarter, while occupancy continued to recover.

From a segmentation perspective, we reached another milestone in our recovery with system wide group revenue fully recovered to 2019 levels in the quarter, a testament to our association and corporate customers prioritizing in person interaction and connection.

Leisure transient revenue continue to sustain strong momentum with a durable guest base that continues to place a high importance on travel which resulted in being 14% ahead of 2019 levels in the fourth quarter, while business transient was 18% below 2019 levels, but.

Showed incremental improvement from the previous quarter.

From a geographic perspective, the recovery continued to be broad with all key geographies outside of Asia Pacific trending nicely ahead of 2019 levels.

<unk> in our EMEA and southwest Asia region were notably strong with Revpar, 20% ahead of 2019 levels driven in part by the World Cup in Qatar and strong leisure demand across Europe .

In the Americas Revpar was 6% ahead of 2019 levels driven by our luxury brands, which were 23% ahead of 2019.

Lastly, Asia Pacific finished the quarter, 22% below 2019 levels driven by a decline in performance from greater China.

Our ALG resorts had another exceptional quarter with net package revpar up 24% compared to 2019 levels for the same set of properties managed by ALG in the Americas.

We also reached a notable integration milestone during the quarter with more than 20, ALG resorts across Europe , now bookable through Hyatt channels.

World of Hyatt members can now earn and redeem points at the majority of ALG resorts worldwide.

As we look to 2023, both our legacy Hyatt business and ALG resorts continue to perform exceptionally well.

We have yet to see signs of slowing in fact, it's quite the contrary.

In January systemwide, Revpar increased 65% compared to last year with the growth aided by easier comparisons due to omicron last year.

Additionally, net package Revpar at our ALG resorts was up 42%.

As we look at future bookings group revenue for the full year is pacing, 21% ahead of last year at our Americas full service managed properties.

And gross package revenue at our comparable ALG resorts for the full year as pacing, 30% ahead of last year.

Lastly, we are encouraged by the significant increase in actualized Revpar and future bookings in January from our Asia Pacific region.

As a reminder, in 2020 to be adjusted EBITDA contribution from Asia Pacific was down more than 50% relative to 2019, despite being 30% larger in room count.

As revpar rapidly recovers in the region, we anticipate it will serve as a significant tailwind.

In summary, as we assess overall business trends, we maintained our optimistic outlook.

Future bookings remained strong and performance continues to exceed expectations.

Conversations with corporate customers continue to suggest further recovery is ahead for group and business transient travel and leisure transient shows no signs of slowing as evidenced by the strong bookings at our resorts.

Finally, a quick update on our real estate transactions before turning it over to Joan.

We are pleased with investor interest and engagement on the asset we have been marketing since last quarter and are happy to share that we launched the marketing process for an additional luxury asset this week.

We remain focused on realizing the most attractive valuations and securing durable long term management or franchise agreements and we remain highly confident in achieving our 2 billion sell down commitment by the end of 2024.

In closing I would like to again express my gratitude to the Hyatt family for their hard work and contributions to a transformative year, our strong free cash flow and asset light earnings mix are evidence of consistent execution of our strategy.

Looking ahead I am confident in our ability to continue to drive success and deliver value to our shareholders.

Joan will now provide more details on our operating results Joan over to you.

Thanks, Mark and good morning, everyone. My commentary today will cover key drivers of our performance, including our strong cash flow a review of 2022 capital allocation highlights and expectations I can share for 2023.

This morning, we reported fourth quarter net income attributable to Hyatt of $294 million and diluted earnings per share of $2 69.

I will review the nature of the tax adjustment, we recorded in the quarter, which significantly benefited our net income shortly.

But first I'd like to cover our performance this quarter as Mark mentioned this was a record fourth quarter with adjusted EBITDA of $232 million net deferrals of $28 million and net finance contracts a $15 million.

The fourth quarter completed a transformative year for Hyatt and as a result, we generated a record level of fees in the quarter with total management franchise license and other fees of $226 million, an increase of 40% from the fourth quarter of 2019 driven by.

The continued success of our asset light transformation.

It's notable that properties that have joined our system in the last five years include.

Including two relevant ALG contributed 34% of our total fees in the quarter.

Turning to our legacy Hyatt results adjusted EBITDA was $189 million for the quarter, which is approximately 12% higher than 2019 adjusted for currency and the net impact of transactions.

Our management and franchising business has benefited from our larger system size and more fully recovered revpar environment.

As Mark mentioned Systemwide Revpar was two 4% above 2019 or up six 6% when excluding greater China powered by strong rates with leisure transient average rate up 19% and group average rate up 15% compared to 2019 levels.

Sully, our owned and leased segment generated $88 million and adjusted EBITDA for the quarter down.

Down 11% to 2019 on a reported basis, well up 10% to 2019, when adjusted for the net impact of transactions.

Comparable owned and leased margins were 27, 9% in the quarter up 330 basis points to 2019 levels for the same set of properties, reflecting growth in average rate of 11% compared to 2019 and another quarter of strong operational execution.

Turning to <unk>. The performance of this segment once again exceeded our expectations adjusted EBITDA was $43 million net deferral or $28 million and net finance contracts were $15 million.

Adjusted EBITDA included a noncash benefit in the quarter of $23 million related to expired travel credits.

Free cash flow generated by ALG continues to be strong in three key areas drove financial results.

First net package Revpar for the same set of ALG properties in the Americas was up 24% compared to 2019, reflecting strong net package ADR growth of 30%.

Total fees were $40 million in the quarter, reflecting the strong revpar environment.

Second approximately 8300 membership contracts were signed for Alg's unlimited vacation club in the quarter exceeding 2019 levels by 29%.

You can see now has 131000 active members, marking another year of impressive expansion.

Sure.

ALG vacations continues to generate solid results driven by a transformed business model and strong unit pricing.

In the quarter, there were approximately 563000 guests departures and the business realized a margin of 13% when excluding the impact from the expired travel credits.

As expected the adjusted EBITDA contribution from ALG vacations was lower in the fourth quarter as compared to prior quarters due to typical seasonality.

As we look to 2023, we're optimistic about the first quarter given the trends in January .

Expected continued strength of leisure travel demand favorable pricing environment and the airlift that remains above 2019 levels for key Americas destination.

I'd also like to provide an update on our strong cash and liquidity position.

As of December 31.

Our total liquidity of $2 $6 billion included $1 $1 billion of cash cash equivalents and short term investments and approximately $1 $5 billion in borrowing capacity on our revolving credit facility.

It's notable that our liquidity remains similar to what we've reported a year ago, even while reducing our debt by approximately $880 million and repurchasing class a shares of $369 million during the year.

These actions are clear evidence of our commitment to our investment grade profile and a testament to the strong free cash flow generation of our business. In addition to the successful execution of our asset sales our balance sheet is strong and we returned to a full investment grade rating with all three agencies.

I wanted to take a moment to provide additional details on our cash flow.

The success of our strategy is reflected in both the transformation of our cash flow from operations, which was $674 million in 2022 <unk>.

Approximately 70% higher than 2019.

And our capital expenditures, which were $201 million approximately 46% lower than 2019. This resulted in an impressive free cash flow of $473 million for the year.

Before I move to guidance I would like to provide an important tax update.

As a reminder, in 2021, we entered into a three year cumulative loss position for our U S operations, which required us to record a $215 million noncash valuation allowance against our deferred tax assets.

In the fourth quarter of 2022, the net tax benefit for income taxes in the consolidated statement of income included a $250 million adjustment representing the reversal of this previous expense now that both recent and future expected pretax U S. <unk>.

Some level provide sufficient evidence that our U S deferred tax assets are likely to be realized.

Lastly, and most importantly, both of these adjustments had zero cash impact.

Finally, I'd like to provide a few comments on our current outlook for 2023.

We expect full year 2023 system wide revpar growth in the range of 10% to 15%.

<unk> 2022 on a constant currency basis we.

We expect larger growth rates over the first half of the year in the mid 20% range and while visibility into the back half of the year is limited we expect revpar growth in the second half of the year to be in the mid single digits.

Continued recovery in Asia Pacific and ongoing improvements in group and business transient demand serve as key contributors to our revpar growth expectations over the back half of the year.

We're confident that we'll see another robust year of net rooms growth driven by a strong pipeline and our ability to execute on conversion opportunities.

Our full year net rooms growth outlook for 2023 is approximately 6%.

We expect adjusted SG&A to be in the approximate range of $480 million to $490 million in 2023 inclusive of approximately $15 million of one time integration expenses associated with carryover projects from 2022 for <unk> and <unk>.

The acquisition of Dream Hotel group.

Our SG&A guidance is inclusive of incremental run rate SG&A related to the Dream Hotel acquisition as well as other strategic investments to strengthen our competitive positioning.

Yes.

We expect capital expenditures to be approximately $200 million.

This is inclusive of the LG as well as the transformative investment into the Hyatt Regency, Irvine, which accounts for nearly one quarter of 2023 capital expenditures.

As a reminder, the Hyatt Regency Irvine acquisition last year and the planned capital investments provides us strategic distribution and an important market. We look forward to welcoming guests for a spectacular reopening this fall.

Lastly by way of reminder, I want to highlight a couple of onetime items. We commented on during the course of 2022 that will not reoccur in 2023.

First.

The adjusted EBITDA contribution of approximately $34 million from owned hotels and approximately $4 million from joint ventures sold in 2020, Q will not reoccur in 2023.

Further details on this can be found on schedule a 11 in the earnings release, including a breakdown of the adjusted EBITDA contribution for sold hotels by quarter in 2022.

Second ALG revenue and adjusted EBITDA benefited in 2022 by approximately $4 million in the third quarter and approximately $23 million in the fourth quarter, primarily from the exploration of unredeemed pandemic related travel credits.

I will conclude my prepared remarks by saying we are very pleased with our 2022 operating and free cash flow results, we delivered revpar growth exceeding 2019 levels over the back half of the year drove a record level of fees and free cash flow expanded our development pipeline.

We delivered industry, leading organic net rooms growth for the sixth consecutive year.

We're proud of the execution of our long term strategy that has enabled us to accelerate our asset light growth while at the same time, reducing leverage and returning capital to shareholders.

As our guidance for 2023 implies we believe our momentum is set to continue this year earlier.

Early results are off to a great start our Asia Pacific region is recovering quickly and we expect it will serve as a tailwind throughout the year.

Our differentiated model positions us uniquely to continue to take advantage of the recovery in travel in addition to providing a compelling value proposition for owners looking to join the Hyatt family of brands.

And one final update to share we'll be hosting our investor day on May 11th of this year at secrets, Moe Shay and secrets impressions, no Shay <unk> fantastic luxury all inclusive properties and Playa del Carmen in Mexico, where we plan to expand on many of these important topics.

Further details will be shared in the coming weeks.

Thank you and with that I'll turn it back to our operator for Q&A.

Thank you as a reminder to ask a question. Please press star followed by the number one on your telephone keypad.

To withdraw your question. Please press star one again.

We'll pause for just a moment to compile the Q&A roster.

Our first question comes from Patrick <unk> from <unk> Securities. Please go ahead. Your line is open.

Hi, good morning, everyone.

Getting a number of questions from investors about it.

And again I don't mean to sound accusatory here.

Number of your peers have given either EPS or EBITDA guidance curious as to what's holding you folks back from providing similar.

Yeah.

Well Patrick.

Start by giving you a sense of how the revpar guidance that we've provided.

Trac you an expectation for 2023, okay.

If you think about the.

$65 million that we generated and adjusted EBITDA net deferrals and that demand contract.

And then you remove from that the one time items that I noted in my prepared remarks.

You land at a baseline of about $1 billion.

And we continue to find that the EBITDA sensitivity that we've been that we.

Shared with you in 2019 has continued to hold true at a point of Revpar growth.

B to about 10 to 15 million on EBITDA.

EBITDA on the legacy <unk> business.

The midpoint of our Revpar range and apply that sensitivity.

You'll be able to model what you expect for 2023.

Alright.

Yeah with respect to ALC.

So as you think about that business and how well exceptionally well and performed in 2022.

On all cylinders.

All time highs in net package revpar and the pricing associated with our membership club.

And also our package prices for <unk> as we look at this year and we look at net package Revpar, we expect directionally similar dynamic between the first half in the second half and a lot of that is driven by the business.

And the and the easier comps if you will in the first quarter and.

Going into the second quarter.

And the second that the second half of the year. We will also have moderated revpar net package revpar growth rate.

Finally for vacation syndication business.

You might recall that.

In our second quarter earnings release last year, we noted that there is.

Seasonally adjusted <unk>.

Activity level for vacation.

Typically in the third quarter and the fourth quarter and what we saw in the third quarter.

Really really exceeded expectation. So this is this is what we call a shoulder periods, where demand is typically lower than we have fewer departures on the vacations business and it really just exceeded the pent up demand coming from the first half of 2022 into the third quarter except.

<unk> above our expectations.

And so youll see in the fourth quarter of 2022, we saw seasonally lower contribution from that part of the business. So as we think about vacations. This year, we expect to return to more normal seasonal levels.

In the second half of the year so.

That hopefully gives you an idea about how we're thinking about the dynamics first half second half.

And my final note is that in.

In the fourth quarter on the vacations business the other seasonal impacts that we see.

<unk> is the need to invest into the business going into the high season. So those are a couple of dynamics ins and outs that we can provide both on the sensitivity to the Hyatt legacy business. The onetime items, you need to take into consideration and what we expect.

Or ALG going into 2023, I would just add two quick things Patrick it's mark.

First given booking windows, which are extending.

Still relatively short.

We felt like we would gain a lot more visibility as we pass through our first quarter thats going to be by comparison to last year a massive quarter.

We're seeing really solid pace, both for our resorts LG up 30.

U S.

Legacy Hyatt resorts bookings in January were plus 20%.

So leisure is showing.

Showing no signs of.

The slowdown whatsoever.

Group, I mentioned, plus 21% pacing through the year, we feel really strongly about that we had pickup last year that was in excess of book rooms on a consistent basis. None of that is included in that base number.

And that includes some real real weakness later in the year that we are currently.

Observing and see what we can do to ameliorate really three key cities.

Chicago Atlanta, New Orleans, just have we really weak citywide patterns.

But even with that we're showing really good pace.

It's inclusive of that.

The final thing is we are.

Embedded the backdrop to all of this is a slowing in the second half with respect to relative to macroeconomic conditions.

I think our sentiment as we see spreads credit spreads compressing, but rates remaining relatively higher for the time be.

We have these dynamics, which are showing great signs of strength across our business lines, including business transient and by the way.

But we feel like we will have dramatically better visibility post Q1 into Q2.

Okay.

That's a great color there. Thank you a lot to digest just a quick follow up question on <unk>.

The Hyatt Irvine would you consider that hotels sort of.

A temporary ownership until it sort of up and running and stabilize and that would be something you would consider selling with a long term franchise.

Franchise or management contract.

Okay.

Yes, that's the intention.

When we when we under wrote.

The acquisition itself first.

First of all we took full account of the renovation program that we're now executing against.

And our intention is that as soon as we demonstrate what we think is going to be extraordinary demand that we can pull into that hotel.

We will take it to market.

Okay very good thank you so much.

Okay.

Thank you.

Our next question comes from Stephen Grambling from Morgan Stanley . Please go ahead. Your line is open.

Hey, good morning, Thanks for taking the questions.

From a strategic standpoint, you've completed a number of acquisitions moving asset light or are we in digestion mode. At this point are there still other areas that you would say you want to fill and given some of your peers have made a bigger push down chain scales and really even double down in some cases unlimited service and more franchise.

The agreement how are you thinking about franchise mix in limited service as a potential area of growth longer term.

Thank you.

Steven couple.

Couple of things first.

Our integration process with <unk> has gone extraordinarily well the cultural alignment of the two companies has allowed us to move very quickly.

There are only a couple of areas, we largely accomplished everything that we set out to accomplish in 2022, there is some carryover items.

Mostly in the in the area of <unk>.

Some.

Ciber.

And control environment topics.

Feel really good about where we stand, but we wanted to do some additional work in those areas plus a lot of what we're spending in 2023 is actually enhancements of capabilities specifically in digital so the number one investment in.

The quote integration spend in 2023 has to do with.

Digital investment in improving the world of Hyatt experience for those world of Hyatt members staying at ALG properties.

Which is highly relevant because we launched world of hybrid may we ended the year.

Got a 17%.

Room penetration for World of Hyatt members, which is extraordinary and thats baked in a short space of time, and we signed up over 315000, new World of Hyatt members at AMG property, So the world of Hyatt.

Production for ALG properties is on our greatest tendency and just we're just getting going so enhancing that and actually leaning into that further will allow us to improve distribution mix and lower distribution costs. So I'm, just giving you some color on kind of where we stand on that on that integration process Dream is brand new to us.

We brought over a significant measure of resources, meaning people and capabilities.

They have an extraordinary team, especially in food and beverage planning and programming and nightlife and entertainment.

And those are areas that we have existing resort, where we don't have any resources in the entertainment piece.

And we're bringing that in and Thats really an investment in the total lifestyle portfolio that we've got which as you know is big and growing but we believe that all of that integration work will be done this year.

So we feel really good about where we stand on the integration front, we don't feel like we are.

Reg down by further integration efforts that are going to really consume a lot of our time mind share.

So we will continue to look for platforms.

A key screen that we use is first does it fit in with respect to our overall strategy and our portfolio second and dream does perfectly for the reasons that we cited secondly.

Does it actually enhanced strategically enhance that network effect. So if you look at Lindner one of the key drivers of that deal was that we were adding significant representation in Germany, Germany is the number one feeder market into the into the.

The belly, Eric Islands, and the number two feeder market is that the Canary Islands. So we are.

We're actually creating a much bigger guest base to help actually create a powerful network effect for all of our resorts that we brought on three LG.

That's an example of a network effect that we think is really important.

And third in every single case, the platforms that we acquired had growth embedded growth.

In all cases, we've actually enhance that relative to our original underwriting which is why we got a lot of momentum in those areas. So we will continue to look for those sorts of opportunities, but theyre also portfolio deals.

We will continue to work on it I would consider lindner a portfolio deal not a brand acquisition.

And we will continue to focus on that.

Our strategy as you know has been to focus on the high end customer and serve and operate at the high end of every segment that we serve.

And right now we continue to focus on filling out our portfolio to be able to add the number of experiences and a critical mass that we have for that high end traveler.

I'm, a believer and never say never about extension into other segments, but that has been our are clear Barry.

Deliberate strategy over the last five years, which I feel I feel like we've done we've made tremendous progress against so thats, where we stand at the moment.

That all is super helpful and maybe as a quick follow up the puts and takes that were outlined on the guidance seem to get to call. It a $1 2 billion EBITDA range, which would mean that you are closer to two turns of net debt to EBITDA versus peers more like three turns or above.

Is that the right math and how are you thinking about the right leverage level.

This rate environment, and as you move asset light down the line.

Yes, I would say Steve is that we are making great progress and in part due to the great performance, Great EBITDA performance and we've said on a growth basis that we're targeting about $3 to $3 five so there.

Theres different measurement for that.

Leverage ratios that we're managing with our investment grade profile. So that is our commitment and as we generate more cash flow, we'll have more investment to be able to make decisions about how to invest back into the business and.

Returning capital to shareholders when appropriate I would just add.

We talked about mix earnings mix, and we talk about free cash flow.

Just pay attention to the fact that 100% of reported.

Adjusted EBITDA, plus net deferrals, plus finance contracts from ALG converts to cash.

So the cash conversion effectively 100%.

There may be timing differences because of working capital that carries over but working capital is net zero over the course of any 12 month period.

Secondly, our cash conversion is a net cash flow from legacy Hyatt is rising or franchise proportion is increasing we are increasing our franchise base in.

In Europe in particular.

Finding more and more opportunities on franchising.

In some other markets, notably South America, So I believe that Youll see a growth in our franchise percentage overtime.

We still are dominantly managed.

Our managed business, but I think franchise will be a grower and secondly, and thirdly, rather the capex.

Sorry for the portfolio is coming down and will continue to come down so.

Those are the key drivers to having great confidence that our cash position and cash generation.

It has really been transformed already.

Thanks, a lot of the free cash flow focus.

Our next question comes from Joe Greff from J P. J P. Morgan. Please go ahead your line is open.

Good morning, everybody.

Two comments on on how Youre thinking about 2023.

One would you expect the ALG two to grow adjusted economic EBITDA year over year, given the onetime benefit of $27 million from.

From the.

Travel credits exploration.

I think the short answer is no because there is that that was a release of a liability.

While we didnt have a cash impact was a reduction in.

The liabilities that we took on when we bought the company so from a valuation perspective.

It is relevant.

That got released because they lapse.

A lot of the quote settlement with travelers who have booked holidays.

That we're not we're not able to be taken because of Covid were settled in travel credits. These travel credits actually expired. So thats actually what gave rise to that but when we bought the company. We were not just familiar with it we took it into account in the liabilities that you. Soon so the fact that we took on a liability that turned out to be.

Have no cost associated with it so while there wasn't a cash benefit in the reported earnings. This is a GAAP geography issue.

The pickup in sort of evaluation, so to speak but no.

That's a one timer.

Secondly, right now.

We are assuming.

That.

Excuse me the seasonality issues that Joan mentioned earlier will revert to will not look like.

Like they did in 2000.

Because it was exceptional that we filled in.

And.

And so we are.

We are basically expecting that we will return to a more normal seasonality effects.

So for those reasons I would say no.

We wouldn't expect.

Growth from the 22 level, having said that.

Three things are true.

First.

Package Revpar in January was up 42% well ahead of our expectations.

Casing.

For ALG is plus 30% for the year again ahead of our expectations and third where growth we're adding properties.

So I think that there are offsets.

To some of the structural things that we were expecting.

In two to impact <unk> business.

So I would say stay tuned.

Right now.

If things remain as robust as they have started.

We will be wrong.

US being able to grow from where we were at 22.

But it's really too early to say the booking window is less than 60 days or it's about 60 days I should say so I would just say stay tuned we're going to we're going to be tracking this extremely closely.

Great. Thank you Mark that was helpful and then finally.

Could you breakdown the rooms growth between ALG and highest non ALG.

Portfolio through 23 of the Delta.

23.

Oh in 'twenty three.

Sure.

I think I.

Thank you.

Sure.

The growth.

Is is alg's up about 12% is that right.

Oh, Okay. So I think.

Well outpace legacy Hyatt growth.

While we were debating that here is because we do have assumptions.

With respect to conversions.

Conversions last year represented about 35% of our total growth.

I think that would be key.

The thing to note Joe is that B b.

The entirety of the construction.

Profile across the hotels that had been under construction, we have close to 40% of our of our pipeline under construction has shifted right.

Had over 8400 rooms that we felt we were going to open this year they got pushed into 'twenty three but concurrently we are.

Taking the view that we will have.

A significant number that get pushed into 'twenty four as well so.

It's almost like the entirety of the other construction.

Profile has shifted right.

And what's making up the difference right now is first of all.

ALG properties are not subject to the same dynamics could because of the markets in which they are being constructed so we have more durable.

Is it more higher visibility to the openings actually in construction being completed on time, so the biggest area, where where that dynamic is true is China.

<unk> got shifted out to the right significantly.

And we will stay shifted to the right until probably sometime in 'twenty four because it's going to take the real estate sector time to catch up.

So that's been a dynamic that's just a reality that we're living with.

Our long term brand health or growth issue. It's a short term dynamic with respect to the construction profile of what we're dealing with.

We did have significant convergence in 'twenty two we expect to have a fair number of conversions in 2003 as well.

Higher than our historic 20% to 25% levels, maybe not as high as the 35% we posted in 'twenty, two but significant and so.

Meanwhile, I think.

The number of.

Opportunities that we're seeing with respect to ALG growth do include some portfolio transactions on which we are working so therein lies the relatively higher growth rate for EOG.

Two relative to legacy items.

That's responsive to you.

Perfect. Thank you Mark.

Thank you.

Yes.

Our next question comes from Shaun Kelley from Bank of America. Please go ahead. Your line is open.

Hi, good morning, everyone.

Was hoping we could get a little bit more color maybe on the owned and leased margins you've done a great job of helping us kind of bridge with some of the asset sales I believe you mentioned in the fourth quarter margins on a comp basis still up about 330 basis points.

Your year over year versus 2019.

As we start to get into a much more normalized environment inflation, having been a real cost over.

Five year cumulative period, we're starting to hear hotel owners out there talking a little bit more about those pressures so kind of what's the expectation for holding on to some of those margin gains for 'twenty three and beyond.

So John I'd be happy to answer that.

Expectations that we have shared consistently is that we expect to be 100 to 300 basis points above pre COVID-19 levels, and thats really driven by permanent improvements that our teams in the field have made with respect to digital capabilities.

Very very disciplined focus on productivity.

Some of that is helping to minimize the wage inflation wage rate growth that we've seen in the quarter and the fourth quarter. We had an excellent result of 330 basis points. That's on a comparable basis you mentioned the change in the portfolio. So that is the same set of properties to 2019.

That is helped by rate.

Right now being up about 11% and we also have a lower mix.

F&B is a proportion of total revenue, which is a bit lower on the margin side, but I would just reiterate that we continue to expect.

That range of 100 to 300 basis points.

Into the future.

That's great and then as my follow up maybe a little bit more strategic Mark you just talked a lot about some of your expectations for net unit growth.

But some of the different segments for 'twenty. Three you just help us think about returning to maybe a little bit of your longer term longer term, you've been able to deliver on an organic basis as much as 5% to 7% and pretty much lead the the broader kind of high level industry.

Any reason that you see that.

Get back to those types of levels once the development environment sort of stabilizes improves a little bit appreciating some of the delays around China today, and then probably.

<unk> in the U S as well, but as we get to a little bit more of a more normalized kind of a world out. There is there a reason base effect or any other that we can't get back to let's call it 5% to 7% in the medium to long term.

There's absolutely no reason.

Why we can't get back there and we expect to.

There are a couple of drivers to that the first is our brand performance continues to grow and improve.

We've expect experienced wonderful market share gains.

Urban has been an upside surprise.

We're gaining significant share in group.

Urban group.

Surprisingly strong.

And transient transient profile that we realized we ended the fourth quarter for quarter was 18% off of 2019 levels.

January started off much higher than that but ended at 17% of the first two weeks of February at our 12% off so we see a <unk>.

And in that domain.

And concurrent with that we have volume account.

<unk> will yield high single digit.

ADR increases so we are in.

Is that the mix of our business and the significant expansion of our leisure lifestyle portfolio is enhancing the value the world of Hyatt proposition and really driving much higher penetration just for reference point.

Our Americas full service hotels ended.

2022 for the full year at about 50% World of Hyatt.

Penetration and for the total system wide, we were in excess of 42%. These are really strong numbers up significantly so the world pilot program.

Is gaining a lot of traction we had I.

I think I mentioned in the script that we're up to over 36 million members now.

Our credit card holder base has increased significantly.

And the spend rate on that card has increased significantly. So I would tell you that the network effect that we're seeing is going to continue to drive performance, which will continue to drive demand for our brands.

So I feel really strongly about all of that not to mention the fact that we ended the year with an all time high pipeline of 117000 rooms. So.

We don't see any reason why we won't get back to those organic growth levels.

I would be shocked if we did it.

Thank you very much.

Yes.

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

Thanks, Good morning.

Unit growth of EMR over the next few years change your regional exposure I guess, what I'm trying to figure out is if there's greater exposure into Europe does that increase your likelihood of more brand acquisitions over there.

No.

The.

Growth for Amr's pretty balanced right now.

The resorts in Europe tend to be somewhat smaller room count.

The ones in the Americas, we have a larger pipeline and rooms in the Americas than we do in Europe .

We would like to extend and expand in Europe . Further so we are focusing on that but I don't think it's going to materially shift the mix.

<unk>.

Okay and within your legacy system can you remind us what the typical differences in spend for our world of Hyatt guests versus non loyalty guests and just how that's changed over time.

Yes, so first of all world of Hyatt members.

Or in general paying higher ADR.

The total spend for world of Hyatt members tends to run.

Mid teens to 20% higher than non world of Hyatt members.

And that's been that's been consistent we're seeing that same dynamic by the way for world of Hyatt members staying at our all inclusive resorts as well we're just starting.

I am actually.

Extraordinarily encouraged to see a 17% room night penetration by the end of the year for World of Hyatt members. This is.

Significant expansion of the number of.

All inclusive resorts that we've got and the world of Hyatt members are discovering.

Those that resort experience.

At a pace.

Is remarkable so I have.

I have increased enthusiasm and confidence that we're going to see a growing level of world of Hyatt engagement and penetration over time.

You may have missed this.

Have you said, what what percentage do you think it could grow to over time.

Well right now if you look at our EBIT <unk> hotels.

Which don't have the benefit of a.

The captive.

Wholesale platform tour operator platform.

We have a cult ALG vacations.

And they don't have the benefit of the membership program at this point.

UBC in our case.

We've gotten to over 50% penetration for Hyatt channels into those hotels that as high as dot com direct digital.

The mobile web or App.

World of Hyatt and third group business.

We had a conversation yesterday with our head of national sales.

Global sales rather than <unk>.

And I asked about his outlook with respect to selling group business into the <unk> portfolio. This year.

He is very enthusiastic about that so I think that direct channel is going to continue to grow and our reference point frankly is that EBIT zoro experience that we've had where hyatt represents more than 50% of the traffic into those hotels.

Okay. Thanks Mark.

Thank you.

Our last question will come from Smedes Rose from Citigroup. Please go ahead. Your line is open.

Hi, Thank you.

I just wanted to ask you a little bit more about China. If you could just remind us what percent of your pipeline is now in China, and maybe just on the development side kind of what Youre seeing in terms of is that starting to kind of ramp back up as well.

Yes.

Operations overall.

Yes.

China is performing in a manner that we.

Would've hoped it would which is to see a significant.

That back.

Once restrictions were lifted.

January was a stunning months of performance and.

And.

We started just to give you a reference point for how extraordinary.

The volume instantaneous volume of traffic is the first two weeks of February we ran higher occupancies in our system in China that we did in the United States.

So it has been just an amazing.

Recovery that happen instantaneously.

Our outlook for the year was probably quite conservative coming into the year, but.

Because we expected a slower.

Ramp over the first half.

Now it's true that January was benefited tremendously by a massive amount of leisure travel and lunar new year was in January .

Was just over the holiday period, I think we ran 15% above our prior peak so.

There was a lot of demand that would leisure focused.

Typical with what we would expect and that's what we've seen elsewhere, but business business travels coming back we see that first and foremost in our <unk> by higher which is our upper mid scale.

In dense urban population dense urban locations, where it's mostly business travel and we're seeing great performance in those brands in terms of the pipeline about 40% of the total pipeline is in China.

So we we have.

A significant measure of growth ahead of US we expect to open 24 hotels in China. This year.

That's even with those construction lags that I referenced earlier.

And about two thirds of that.

That <unk>.

<unk> count that's opening maybe even higher than that maybe three quarters is.

What I would describe as legacy Hyatt brands and the remainder is your curve by higher so it's still dominated within our portfolio not in the upper mid scale brand that we launched.

But growing.

I think that the outlook for construction this year is mixed.

Yes, the restrictions have been lifted.

But some of the.

Private developers not not government control room.

We're digesting two things one they are digesting still be aftermath of evergrande.

Some of the <unk>.

That formation challenges that exist in China and secondly.

There have been targeted.

Subsidies or targeted investments made by the government.

Especially in residential.

Development in China to complete projects that are underway and the reason is because the government wants to stand behind.

Actually a soft landing for residential real estate, which is a big investment for many Chinese citizens. So that's going to get digested and the government will have some backstop with respect to that segment that asset class and I think by the end of this year. Our expectation is by the end of this year the normal.

Cadence of construction of hotels.

The first quarter next year, we'll return.

So we think that this year is going to be a bit sloppy as we as we work our way through some of those dynamics that I just described.

But feel really good about first of all secular growth in the marketplace and secondly.

The quality of our core partners development partners in China is very very strong very high quality level. So we feel good about the medium to long term prospects.

Great. Thank you I appreciate it.

Yes.

This will conclude today's conference call. Thank you for your participation and have a wonderful day you may all disconnect.

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