Good morning, and welcome to the Hyatt Q4 and full year 2022 earnings call. After the speaker's remarks, we will conduct a question and answer session. To ask a question, you'll need to press star then the number 1 on your telephone keypad. If you require operator assistance at any time, please press star 0. As a reminder, this conference call is being recorded. I would now like to turn the call over to Noah Hoppe , SVP , Investor Relations. Thank you. Please go ahead.
Thank you. Good morning, everyone. Thank you for joining us for Hyatt's Q4 and full year 2022 earnings conference call. Joining me on today's call are Mark Hoplamazian, Hyatt's President and CEO , and Joan Bottarini, Hyatt's CFO . Before we get started, I would like to remind everyone that our comments today will include forward-looking statements under Federal Securities laws. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K, quarterly reports on Form 10-Q and other SEC filings. These risks could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issue 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. With that, I'll turn the call over to Mark.
Thank you, Noah. Good morning, everyone, and welcome to Hyatt's Q4 and full year 2022 earnings call. I'd like to begin today by thanking all 189,000 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've 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. 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 $94 million of net deferrals and $63 million of net finance contracts, with the sum 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 5 years ago and 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. 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 16x, while the earnings multiple applicable to the $3.6 billion in platforms that we acquired was approximately 8x. Second, the capital investment needed to maintain the assets that we sold compared to the platforms that we acquired is significantly different. The 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, collectively needed only $40 million of capital expenditures in 2022. Not only did 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 Hyatt's 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 in free cash flow, our strategy has 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've sold in the past five years, we've maintained a long-term management or franchise agreement.
As a result, we've retained approximately $40 million in 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've been successful in integrating and scaling the platforms we acquired. As a result, these platforms are 17% larger today as compared to when we acquired them and have a significant pipeline of 18,000 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. In only five years, we doubled the number of luxury rooms, tripled the number of resorts, and quadrupled the number of lifestyle rooms in our portfolio. 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 platforms 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 5 years. Looking ahead, I'm 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. A 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 2.
This deal builds upon Hyatt's industry-leading portfolio of higher-end lifestyle brands, adding 12 hotels and more than 1,700 rooms and 24 signed long-term management agreements that we ultimately expect will grow Hyatt's 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 6.7%, 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 135,000 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 117,000 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 2.4% compared to 2019 levels in the Q4, or up 6.6% 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 continued 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 Q4, while business transient was 18% below 2019 levels, 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. Results in our EAME 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. 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, system-wide RevPAR increased 65% compared to last year, with the growth aided by easier comparisons due to Omicron last year. 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. Gross package revenue at our comparable ALG resorts for the full year is 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 2022, the 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 maintain our optimistic outlook. Future bookings remain strong and performance continues to exceed expectations.
Conversations with corporate customers continue to suggest further recovery is ahead for group and business transient travel. 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. 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. 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 Q4 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. First, I'd like to cover our performance this quarter. As Mark mentioned, this was a record Q4 with Adjusted EBITDA of $232 million, Net Deferrals of $28 million, and Net Finance Contracts of $15 million.
The Q4 completed a transformative year for Hyatt. 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 Q4 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 5 years, including Two Roads and 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, system-wide RevPAR was 2.4% above 2019 or up 6.6% 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. Additionally, our owned and leased segment generated $88 million in Adjusted EBITDA for the quarter, down 11% to 2019 on a reported basis, while 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 ALG, the performance of the segment once again exceeded our expectations.
Adjusted EBITDA was $43 million, net deferrals were $28 million, net finance contracts were $15 million. ALG Adjusted EBITDA included a non-cash benefit in the quarter of $23 million related to expired travel credits. free cash flow generated by ALG continues to be strong. 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 8,300 membership contracts were signed for ALG's Unlimited Vacation Club in the quarter, exceeding 2019 levels by 29%. UVC now has 131,000 active members, marking another year of impressive expansion.
Third, ALG Vacations continues to generate solid results driven by a transformed business model and strong unit pricing. In the quarter, there were approximately 563,000 guest 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 Q4 as compared to prior quarters due to typical seasonality. As we look to 2023, we are optimistic about the Q1 given the trends in January, the expected continued strength of leisure travel demand, favorable pricing environment, and the airlift that remains above 2019 levels for key America's destinations. I'd also like to provide an update on our strong cash and liquidity position.
As of December 31st, our total liquidity of $2.6 billion included $1.1 billion of 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 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, we return to a full investment grade rating with all three agencies.
I want 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, 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'd like to provide an important tax update. As a reminder, in 2021, we entered into a 3-year cumulative loss position for our U.S. operations, which required us to record a $250 million non-cash valuation allowance against our deferred tax assets.
In the Q4 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 pre-tax U.S. income levels 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. 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%-15% compared to 2022 on a constant currency basis. We expect larger growth rates over the first half of the year in the mid-20% range.
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 transit and 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-$490 million in 2023, inclusiveApproximately $15 million of one-time integration expenses associated with carryover projects from 2022 for ALG and 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. We expect capital expenditures to be approximately $200 million. This is inclusive of ALG 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 investment provides us strategic distribution in 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 one-time 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 2022 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 Q3 and approximately $23 million in the Q4, primarily from the expiration 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, 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. Early results are off to a great start. Our Asia Pacific region is recovering quickly, 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.
One final update to share, we'll be hosting our Investor Day on May 11 of this year at Secrets Moxché and Secrets Impression Moxché, two fantastic luxury all-inclusive properties in Playa del Carmen, Mexico, where we plan to expand on many of these important topics. Further details will be shared in the coming weeks. Thank you. 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 1 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 Scholes from Truist Securities. Please go ahead. Your line is open.
Hi. Good morning, everyone. Getting a number of questions from investors about. Again, I don't mean to sound accusatory here. A number of your peers have given either EPS and/or EBITDA guidance. Curious as to what's holding you folks back from providing similar.
Well, Patrick, I'll start by giving you a sense of how the RevPAR guidance that we've provided will track to an expectation for 2023.
Okay.
If you, if you think about the $1.065 billion that we generated in Adjusted EBITDA, net deferrals, and net financed contracts, 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. We continue to find that the EBITDA sensitivity that we shared with you in 2019 has continued to hold true, that a point of RevPAR growth will lead to about $10 million-$15 million in EBITDA on the legacy Hyatt business. If you take the midpoint of our RevPAR range and apply that sensitivity, you'll get to you'll be able to model what to expect for 2023.
All right.
Just want to make a couple of comments
Yeah
with respect to ALG. If you think about that business and how well, exceptionally well it performed in 2022, on all cylinders, we set all-time highs in Net Package RevPAR and the pricing associated with our membership club sales and also our package prices for ALGV. As we look at this year, we look at Net Package RevPAR, we expect a directionally similar dynamic between the first half and the second half, and a lot of that is driven by, you know, the business
The easier comps, if you will, in the Q1 and going into the Q2. That the second half of the year will also have a moderated RevPAR or Net Package RevPAR growth rate. Finally, for vacations, the vacations business. You might recall that in our Q2 earnings release last year, we noted that there's a seasonally adjusted activity level for vacations, typically in the Q3 and the Q4. What we saw in the Q3 really exceeded expectations. This is what we call a shoulder period, where demand is typically lower, and we have fewer departures on the vacations business.
It really just exceeded the pent-up demand coming from the first half of 2022 into the Q3 was exceptionally above our expectations. You'll see in the Q4 of 2022, we saw a seasonally lower contribution from that part of the business. As we think about vacations this year, we expect to return to more normal seasonal levels in the second half of the year. That hopefully gives you an idea about how we're thinking about the dynamic first half, second half. My final note is that in the Q4 on the vacations business, the other seasonal impact that we experience is the need to invest into the business going into the high season.
Those are a couple of dynamics, ins and outs that we can provide, both on the sensitivity to the Hyatt Legacy business, the one-time items you need to take into consideration, and what we expect for ALG, going into 2023.
I would just add two quick things, Patrick. It's Mark. First, given booking windows, which are extending, but still relatively short, we felt like we would gain a lot more visibility as we pass through a Q1 that's gonna be, by comparison to last year, a massive quarter. We're seeing really solid pace, both for resorts, ALG up 30. I mean, Legacy Hyatt Resorts bookings in January were +20%. Leisure is showing no signs of slowdown whatsoever. Group, I mentioned, +21% pace into the year. We feel really strongly about that. We had pickup last year it was in excess of booked rooms on a consistent basis. None of that is included in that pace number.
That includes some real weakness later in the year that we are currently observing and seeing what we can do to ameliorate really in three key cities, Chicago, Atlanta, and New Orleans, that just have weak, really weak citywide patterns. Even with that, we're showing really good pace 'cause 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 macroeconomic conditions. I think our sentiment is we see spreads, credit spreads compressing, but rates remaining relatively higher for the time being. We have these dynamics which are showing great signs of strength across our business lines, including business transient, by the way.
We feel like we'll have dramatically better visibility post Q1 into Q2.
Okay. I that's a great color there. Thank you. A lot to digest. Just a quick follow-up question on the Hyatt Irvine. You know, would you consider that hotel sort of a temporary ownership until it's up and running and stabilized, and that would be something you'd consider selling with a long-term franchise or management contract?
Yes, that's the intention. That's when we underwrote the acquisition itself, first of all, we took full account of the renovation program that we're now executing against. 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.
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 completed a number of acquisitions, moving asset light. Are we in digestion mode at this point, or are there still other areas that you would say you wanna fill? Given some of your peers have made a bigger push down chain scales and really even doubled down, in some cases, on limited service and more franchise agreements, how are you thinking about franchise mix and limited service as a potential area of growth longer term?
Yeah. Thank you. Appreciate it, Stephen. Couple things. First, our integration process with ALG 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's some carryover items, mostly in the area of finalizing some cyber and control environment topics. We feel really good about where we stand, but we wanna do some additional work in those areas. A lot of what we are spending in 2023 is actually enhancements of capabilities, specifically in digital.
The number one investment in the quote, integration spend in 2023 has to do with a 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 Hyatt in May. We ended the year at a 17% room penetration for World of Hyatt members, which is extraordinary in a short space of time. We signed up over 315,000 new World of Hyatt members at ALG Properties. The World of Hyatt production for ALG Properties is on a great ascendancy, and we're just getting going. Enhancing that and actually leaning into that further will allow us to improve distribution mix and lower distribution costs.
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. Those are areas that we have existing where we don't have any resources in the entertainment and nightlife piece. They do, and we're bringing that in, and that's really an investment in the total lifestyle portfolio that we've got, which, as you know, is big and growing. We believe that all of that integration work will be done this year. We feel really good about where we stand on the integration front.
We don't feel like we are dragged down by further integration efforts that are going to really consume a lot of our time and mind share. We will continue to look for platforms. The key screen that we use is, first, does it fit in with respect to our overall strategy and our portfolio? Second, Dream does perfectly for the reasons that we've cited. Secondly, does it actually enhance, strategically enhance the network effect? 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 Balearic Islands and the number two feeder market into the Canary Islands.
We are, we're actually creating a much bigger guest base to help actually create powerful network effect for all of our resorts that we brought on through ALG. That's an example of the network effect that we think is really important. Third, in every single case, the platforms that we acquired had growth, embedded growth. In all cases, we've actually enhanced that relative to our original underwriting, which is why we got a lot of momentum in those areas. We will continue to look for those sorts of opportunities, but there are also portfolio deals that we will continue to work on. I would consider Lindner a portfolio deal, not a brand acquisition. 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. Right now, we continue to focus on filling out our portfolio to be able to add the number of experiences and the critical mass that we have to that high-end traveler. You know, I'm a believer in never saying never about extension into other segments, but that has been our clear, very deliberate strategy over the last five years, which I feel like we've made tremendous progress against. That's where we stand at the moment.
That all is super helpful. Maybe as a quick follow-up, the puts and takes that were outlined on the guidance seem to get to, you know, call it a $1.2 billion EBITDA range, which would mean that you're closer to 2 turns of net debt to EBITDA versus peers more like 3 turns or above. You know, is that the right math, and how are you thinking about the right leverage level in this, in this rate environment and as you move asset light down the line?
Yeah. I would say, Stephen, that we are making great progress in part due to the great performance, our great EBITDA performance. We've said on a growth basis that we're targeting about 3-3.5. You know, there's different measurements for that, leverage ratios that we're managing with our investment-grade profile. That is our commitment, and as we generate more cash flow, we'll have more investments to be able to make decisions about how to invest back into the business and return capital to shareholders when appropriate.
I would just add, we talk about mix, earnings mixing, and we talk about free cash flow. Just pay attention to the fact that 100% of reported Adjusted EBITDA plus net deferrals plus net finance contracts from ALG converts to cash. The cash conversion effectively is 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 into net cash flow from legacy Hyatt is rising. Our franchise proportion is increasing. We're increasing our franchise base in Europe in particular and finding more and more opportunities on franchising in some other markets, notably South America. I believe that you'll see a growth in our franchise percentage over time.
We still are dominantly a managed business, but I think franchise will be a grower. Thirdly, rather, the CapEx carry for the portfolios coming down and will continue to come down. I think those are the key drivers to having great confidence that our cash position and cash generation is has really been transformed already.
Thanks. Love the free cash flow focus.
Our next question comes from Joe Greff from JP Morgan. Please go ahead. Your line is open.
Good morning, everybody. Two comments on how you're thinking about 2023. One, would you expect ALG to grow Adjusted economic EBITDA year-over-year, given the one-time benefit of $27 million from the travel credit expiration?
I think the short answer is no, because that was a release of a liability. While it didn't have a cash impact, it was a reduction in the liabilities that we took on when we bought the company. From a valuation perspective, it is relevant that that got released because they lapsed. A lot of the quote "settlement" with travelers who had booked holidays that were not, were not able to be taken because of COVID were settled in travel credits. These travel credits actually expired. That's actually what gave rise to that. When we bought the company, we were not just familiar with it, we took it into account in the liabilities that we assumed.
effectively, we took on a liability that turned out to be, have no cost associated with it. While there wasn't a cash benefit in the reported earnings, this is a GAAP geography issue. It was a pickup in sort of valuation, so to speak. No, that's a one-timer. Secondly, right now we are assuming that, excuse me, the seasonality issues that Joan mentioned earlier will not look like they did in 2022 because it was exceptional that we filled in. We are basically expecting that we will return to a more normal seasonality effect. For those reasons, I would say no, we wouldn't expect growth from the 2022 levels. Having said that, three things are true.
First, that package RevPAR in January was up 42%, well ahead of our expectations. Pacing for ALG is +30% for the year, again, ahead of our expectations. Third, we're growing, we're adding properties. I think that there are offsets to some of the structural things that we're expecting to impact ALG's business. I would say stay tuned. Right now, if things remain as robust as they have started, we will be wrong about being able to grow from where we were in 2022. It's really too early to say. The booking window is less than 60 days, or it's about 60 days, I should say. I would just say stay tuned. We're going to be tracking this extremely closely.
Great. Thank you, Mark. That was helpful. Finally, could you break down the rooms growth between ALG and Hyatt's non-ALG portfolio for 2023?
Um
How much of the delta in 2023?
In 2023. I think, I think the growth, ALG's up 12, is that right? I think ALG will outpace Legacy Hyatt growth. The reason why 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 the key thing to note, Joe, is that the entirety of the construction profile across the hotels that have been under construction, we have close to 40% of our pipeline under construction, has shifted right. We had over even 8,400 rooms that we thought we were gonna open this year that got pushed into 2023.
Concurrently, we are taking the view that we will have a significant number that get pushed into 2024 as well. It's almost like the entirety of the construction profile has shifted right. What's making up the difference right now is, first of all, ALG properties are not subject to the same dynamics because of the markets in which they're being constructed. We have more durable and higher visibility to the openings actually, and construction being completed on time. The biggest area where that dynamic is true is China. Things got shifted out to the right significantly, and will stay shifted to the right until probably sometime in 2024, because it's gonna take the real estate sector time to catch up. That's been a dynamic that's just a reality that we're living with.
That's not a long-term brand health or, you know, growth issue. It's a short-term dynamic with respect to the construction profile of what we're dealing with. We did have significant conversions in 2022. We expect to have a fair number of conversions in 2023 as well, higher than our historic 20%-25% levels, maybe not as high as the 35% we posted in 2022, but significant. Meanwhile, I think the number of opportunities that we're seeing with respect to ALG growth do include some portfolio transactions on which we're working. Therein lies the relatively higher growth rate for ALG relative to Legacy Hyatt. Is that responsive to you?
Perfect. Thank you, Mark.
Thank you.
Our next question comes from Shaun Kelley from Bank of America. Please go ahead. Your line is open.
Hi. Good morning, everyone. I 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 Q4 margins on a comp basis still up about 330 basis points, year or sorry, versus 2019. You know, as we start to get into a much more normalized environment, inflation, you know, having been a real cost over, you know, a 4 or 5-year cumulative period, we're starting to hear, you know, hotel owners out there talking a little bit more about those pressures. Kind of what's the expectation for holding on to some of those margin gains for 2023 and beyond?
Shaun, I'd be happy to answer that. The expectation that we have shared consistently is that we expect to be 100 to 300 basis points above pre-COVID levels. That's really driven by permanent improvements that our teams in the field have made with respect to digital capabilities and a 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, in the Q4, we had an excellent result of 330 basis points. That's on a comparable basis. You mentioned a change in the portfolio. That is the same set of properties to 2019. You know, that is helped by rates, right now being up about 11%.
We also have a lower mix of F&B as a proportion of total revenue, which is a bit lower on the margin side. I would just reiterate that we continue to expect that range of 100-300 basis points into the future.
That's great. Then as my follow-up, maybe a little bit more strategic. You know, Mark, you just talked a lot about some of your expectations for net unit growth by some of the different segments for 2023. You know, just help us think about returning to maybe a little bit of your longer term. You know, longer term, you've been able to deliver on an organic basis, you know, as much as 5%-7% and pretty much lead the, you know, the broader, you know, kind of high-level industry. Any reason, you know, that you see that we can't 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 some in the U.S. as well.
As we get to a little bit more of a more normalized kind of 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 experienced wonderful market share gains. Urban has been an upside surprise. We're gaining significant share in group, urban group, surprisingly strong and transient. The transient profile that we realized we ended the Q4, the Q4 was 18% off of 2019 levels. January started off much higher than that, but ended at 17% off. The first two weeks of February are 12% off. We see an improvement in that domain. Concurrent with that, we have volume account activity that will yield high single digit ADR increases.
We are seeing that the mix of our business and the significant expansion of our leisure and lifestyle portfolio is enhancing the value of 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. For the total system-wide, we were in excess of 42%. These are really strong numbers, up significantly. The World of Hyatt program is gaining a lot of traction. We had, 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.
I would tell you that the network effect that we're seeing is gonna continue to drive performance, which will continue to drive demand for our brands. 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 117,000 rooms. I not only don't see any reason why we won't get back to those organic growth levels, I'd be shocked if we didn't.
Thank you very much.
Our next question comes from Dori Kesten from Wells Fargo. Please go ahead. Your line is open.
Thanks. Good morning. How does the unit growth of AMR over the next few years change your regional exposure? What I'm trying to figure out is if there's greater exposure to Europe, does that increase your likelihood of more brand acquisitions over there?
The growth for AMR is pretty balanced right now. The resorts in Europe tend to be somewhat smaller in room count than the ones in the Americas. We have a larger pipeline in rooms in the Americas than we do in Europe. We would like to extend and expand in Europe further. We are focusing on that, but I don't think it's gonna materially shift the mix.
Okay. Within your legacy system, can you remind us what the typical difference is in spend for a World of Hyatt guest versus a non-loyalty guest and just how that's changed over time?
Yeah. First of all, World of Hyatt members are in general paying higher ADRs and the total spend for World of Hyatt members tends to run mid-teen to 20% higher than non-World of Hyatt members. 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 mean, I'm actually extraordinarily encouraged to see a 17% room night penetration by the end of the year for World of Hyatt members. This is, you know, a significant expansion of the number of all-inclusive resorts that we've got, and the World of Hyatt members are discovering that resort experience at a pace which is remarkable.
I have increased enthusiasm and confidence that we're gonna see a growing level of World of Hyatt engagement and penetration over time.
I may have missed it, but, have you said what percentage do you think it could grow to over time?
Well, right now, if you look at our Hyatt Ziva and Hyatt Zilara hotels, which don't have the benefit of a captive wholesale platform, tour operator platform, which we have called ALG Vacations, and they don't have the benefit of a membership program at this point, UVC in our case, we've gotten to over 50% penetration from Hyatt channels into those hotels. That is hyatt.com, that direct digital, whether that's mobile web or app. Second, World of Hyatt, third, group business. We had a conversation yesterday with our head of national sales, global sales rather, and I asked about his outlook with respect to selling group business into the AMR portfolio this year, he's very enthusiastic about that. I think the direct channel is gonna continue to grow.
Our reference point, frankly, is the Ziva and Zilara 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 % of your pipeline is now in China and maybe just on the development side, kind of what you're seeing in terms of is that starting to kind of rev back up as well as operations overall?
Yeah. China is performing in a manner that we would've hoped it would, which is to see a significant snapback once restrictions were lifted. January was a stunning month of performance. Just to give you a reference point for how extraordinary the instantaneous volume of traffic is, the first two weeks of February, we ran higher occupancies in our system in China than we did in the United States. It has been just an amazing recovery that happened 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, which was, you know, just over the holiday period, I think we ran 15% above our prior peak. There was a lot of demand that was leisure focused, and that's typical in what we would expect, and that's what we've seen in elsewhere. Business travel is coming back. We see that first and foremost in our UrCove by Hyatt, which is our upper mid-scale, in 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. 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. About two-thirds of that, of the room 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 UrCove by Hyatt. 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, some of the private developers, not government-controlled or owned, are digesting 2 things. 1. They're digesting still the aftermath of Evergrande and some of the debt for-formation challenges that exist in China.
Secondly, there have been targeted subsidies or targeted investments made by the government in especially in residential development in China to complete projects that are underway. 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. That's gonna get digested, and the government will have some backstop with respect to that segment, that asset class. I think by the end of this year, our expectation is by the end of this year, the normal cadence of construction of hotels, they, you know, into the Q1 of next year will return.
We think that this year is gonna be a bit sloppy as we work our way through some of those dynamics that I just described. 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 strong, very high quality level. We feel good about the medium to long term prospects.
Great. Thank you. I appreciate it.
Thank you.
This will conclude today's conference call. Thank you for your participation, and have a wonderful day. You may all disconnect.