Which is great. We're joined by Hyatt Hotels, Mark Hoplamazian, President and CEO, Joan Bottarini, CFO. You're both just off of an Analyst Day event last week in Chicago. For those who couldn't listen in, maybe just give us the key message and what you were hoping to accomplish from hosting that event.
Okay. We'll tag team this.
Yeah.
I think the number one point that we were trying to make is our strategy is really centered around differentiation at scale. What we mean by that is being in a premium positioning in the industry from a rate perspective, a household income perspective, a brand portfolio perspective, has led us to be more deliberate and very focused on serving that higher-end guest. Differentiating the experiences for those individuals is really, really important to us and very critical for us, and it's part of what's allowed us to grow World of Hyatt at the highest rate. We've been compounding at 18%-20% growth per year.
That flywheel of activity that is really focused on making it special at scale for our core customer base, elevating the membership of World of Hyatt and elevating penetration, leads to a separate flywheel that relates to performance of our hotels and therefore developer interest. That's translated into the highest RevPAR growth in the last five years in the industry, highest net rooms growth over the last nine years in the industry. That's really the core of what the strategy piece of the discussion was about. That's not all because we have a bunch of really compelling financial results of that Joan will talk about right now.
Sure. One of the major highlights, part of my presentation last week was to really illustrate these metrics around performance. What tends to get lost, we think, in some of the coverage, is the fact that our organic growth rates have been exceptionally strong and industry-leading. Mark mentioned our net rooms growth for the past nine years. Since 2017, we've grown on a compounded basis by 9%. Organic has been 7%. That has led the industry. That is the number, the organic growth rate. That's what led. Fee growth has grown since 2022 at 14% on a comp. Organic is 10%. That leads the industry. I think there's some debate around what is actually behind those numbers and how do we break it out.
We did the math, and it's really, really compelling because everything Mark is talking about with respect to differentiation, our competitive advantages has translated into results. When we are expressing all of the elements of our strategy to maintain those competitive advantages, it's going to be durable growth well into the future.
Yeah, cool.
I was just going to say, the one other thing I think that's changed a lot is conversion of earnings to cash flow. Maybe.
Sure, yeah. For the past three years, we've been averaging 55% free cash flow to Adjusted EBITDA, it's very much our expectation over the next three years, which is the outlook that we provided at Investor Day, that we will have that same, and even growing, because we just see great opportunities. What we said is that mid-50s number, which is very compelling, especially when you look at the industry. Our asset-light mix is here.
I think that 2022, going back a little bit, an investor actually pointed this out to me at your Analyst Day. They said that we had talked about how you had the ability, between asset sales and free cash flow, to give back effectively 50% of your market cap. When we look at the numbers you've laid out, it's still over 30%. You've had a little bit of a multiple change, but still over 30% of your market cap is available in terms of the free cash flow and some of the asset monetization.
Is some of the change in message, or I shouldn't say change in messaging, some of the messaging meant to be we're now at a point where it's going to be more focused on organic, more of that cash is going to go back to shareholders, and the capital allocation priorities are shifting a little bit? Is it kind of same trajectory or same prioritization from a capital allocation standpoint that we had in the past?
Well, I'll let Mark comment on opportunities potentially that we see relative to inorganic growth. We've been very successful in investing in asset-light businesses. Our track record here has been investments that are, on a stabilized basis, realizing below a 10x multiple, about a 9x multiple. A lot of that has come from the realization of proceeds from asset sales that we've reinvested, and we've also returned a significant amount to shareholders along the way. When you look at the balance of what we've accomplished and the shareholder value that we've delivered by making those investments and also returning, that balance is what we anticipate into the future. We haven't given specific guidelines beyond that, but we definitely know that we'll be able to balance them given the opportunity.
We will continue to look at inorganic opportunities. I don't know that any of them will be massive in size. I think the really compelling dimensions of potential targets would be a coincident or adjacent customer base to our own, and secondly, a geography or a sub-segment that we think is particularly attractive that we think we can actually address faster and better by buying something than building it. We've launched new brands in the upper mid-scale, Hyatt Select, Hyatt Studios, and also Unscripted by Hyatt, and we think that that's the best way for us to grow in that segment as opposed to through acquisition. There are probably other pockets, and that's the way I think about this. There are probably other niches and pockets in different places where we might find opportunities.
We would still run the playbook that we have in the past, which is really look to deliver sub-double-digit effect of multiple acquisitions.
Joan, you made the comment that sometimes recycle the capital that you sell. Do you view the asset monetization proceeds in a different lens than free cash flow generated from your core business, or is it all together?
It's really all together.
Okay.
I did also state last week going back to the Investor Day messages that we expect to be about 95% asset-light earnings-.
Right
because of the opportunities we see on selling some of the real estate in our portfolio today. It all depends on timing. Timing of the opportunities that Mark is describing. We'll have greater opportunities from a leverage ratio perspective to take on some debt for opportunities or for return to shareholders. As you think about balancing all of that together, we've got a lot of options going forward, and we look at excess cash where there isn't an opportunity that's going to create great shareholder value and be accretive to return that.
One of the other, I think, messages that surprised, I shouldn't say surprised, but it was definitely above where consensus expectations was on the room growth side, 6%-8%, effectively best in class, highest of the peer group. Maybe talk to us about what gives you the confidence in sustaining those. Where is that growth coming from across different categories? I think we often look at the pipeline, but I know the pipeline's not the only thing that ends up leading to room growth. Maybe you can tie in conversion activity within that.
Sure. I think the pipeline, you got to start there because we have the highest pipeline ever. The pipeline activity and the new dialogue that we're in on a bunch of hotel development opportunities, and including this week. I've been taking pulse indicators from our developers that are here for the NYU conference, and the activity level's been super high.
A lot of interest in the brands, especially the newest brands. I think between the huge activity, the surge in activity for Hyatt Select and Unscripted and Hyatt Studios, which is really exponential in dimension, in addition to a strong pipeline, and a lot of that pipeline is outside the U.S. and it's full service or luxury hotels. We think we're going to end up both growing the premium segment and getting representation into a lot of new markets through the upper mid-scale brands that we have and that we've launched. The one other thing that I would say is it's not just. I made a comment that caught some attention. I said, when you're eating celery, that's referred to as empty calories. NRG reported by itself is not that helpful.
I don't think if you're an investor, you want to know how much money associated with your growth. What I said is, we're not interested in empty calories. We want nutrition, which means money. The money equation is that the stabilized fees per key in our pipeline is higher than the current fees per key that we have in our system. That goes to the mix. We've got a significant number of full service and luxury hotels, resorts in the pipeline, and that's helping to sustain a very high fee per key for the new hotels that are coming. I would just pay close attention.
A lot of the conversion activity is going to be in the upper mid-scale, and I would just say, I think that's distinct and different to some other systems that are also seeing a surge in conversions in the lower mid-scale and economy segments because of their new brands. You can have high conversion rates. We do expect to have high conversion rates, 35%-40%, which is really what we've been running at. I think we will still see that. Ours are at the upper mid-scale or above. I would say a lot of conversion activity that we're seeing elsewhere in the industry is lower mid-scale and maybe even economy.
Would you ever want to go down into that category?
It'll take a while. We want to fill out the upper mid-scale because we have so much room, so much empty space there, white space, markets in which we don't have representation. It will take a while for us to want to go down. We're strong believers in contiguity or adjacency with respect to how we grow the segments that we're in. We've looked at and rejected opportunities to buy brands that were mid-scale or below because there would've been a gap between upscale, right, Hyatt Place and Hyatt House, and those brands. We looked at a bunch, but we kept on rejecting them because we don't believe that establishing essentially a bimodal distribution of members is helpful. Now, it doesn't create a network effect.
We used to own Microtel, we used to own Best Inns, we used to own Hawthorn Suites, but there was a big gap between Hyatt Place and those brands. Never the twain did they meet. There was no crossover. We don't want to have huge system down here and a system down here and a system up here with any lull or gap. We believe that continuity is really the best way to do it, because 80% of the cross-brand stays that people have are one segment away.
Right.
We need to maintain, we believe that we want to maintain continuity and adjacency all the way through. If we do grow, it'll be to mid-scale, then to lower mid-scale, then to economy, but that's going to take more than a decade.
That, just to be clear on that, effectively it's maximizing the value of your loyalty program.
That's right.
Are going to be earning and then redeeming and staying in the system within that short-
Exactly.
Narrow band, I should say.
That's it.
Great.
Yeah.
You also renegotiated your co-brand credit card program late last year. You said you were expecting a doubling of the contribution to, let's say, roughly $100 million in 2027. Remind us how these programs work. What are some of the drivers as people start to see some of these creep up in terms of the contribution, and what's included in the multi-year outlook that you talked to?
What you were referring to as the doubling, it's from 2025 to 2027. Put out there for 2027. We expressed that we thought that was reasonable and estimate because what we see is very strong engagement and spend on our card. What our bank partners is telling us is that it's even stronger relative to other cards in the industry. It's a very good partnership that we have with Chase, and it also is an opportunity for us to expand that partnership into the future. When you think about the future of our card portfolio, we think there's opportunities. This is something that our Chief Commercial Officer talked about as well, that we think expanding into areas outside of the U.S., maybe a premium card as well in the U.S.
These are all things that we're exploring, and there's real opportunities for us in the coming years as well. That spend that we're seeing from cardholders is what we are collecting a license fee on. Hyatt benefits, the program benefits, and our owners benefit because we increase the base, increase the network in actually the World of Hyatt membership base. That increases the benefits that are delivered to owners because those are owners that are spending more, staying longer, going to hotels first when they open. It's a win-win for across the stakeholder group.
I feel that I still have conversations with folks who are confused by the programs a little bit and the drivers. I think some of that stems from airlines have similar programs, but they don't have a franchise system to also think about. I guess help clarify that, perhaps. Just one, the programs are based, maybe if you can clarify, purely based on top-line spend and the number of sign-ups on the cards. There's no profitability component. Two, you kind of alluded to this, but is there flexibility in how you allocate the total remuneration between the consumer's points that they see, the value of the card, which we can compare and contrast points across programs and see that value, subsidizing or at least helping drive marketing and/or the loyalty program itself, and then that fee that we see to come to you?
Is that kind of set in stone or those split, can those be different?
Well, one of the benefits that we have in our program is a transparent award chart. I didn't mention, the win-win also includes our guests too.
Right
We look at the experience that's provided, both as being a member and what is received, the benefits that are received on property. We feel great, actually, about what we're delivering, actually, through those benefits and the experience, and we see it through the engagement, right? We wouldn't have the engagement numbers that we have without that type of having. That chart, we make changes to it periodically, and those are adjustments that are made based on market. We know that our actual terms are very, very competitive and still very attractive to a lot of members. That's where I think there's some flexibility only in that we want to do that, be transparent about it so that our members can plan and our owners can plan.
As far as the license is concerned and the split, that's something we evaluate, and we do that in a rigorous way with, this is accounting allocation.
Right.
That's done. It's not something that changes. Make a statement about the license fee and that.
Yep.
That you book on top-line revenue.
I do think we are focused on making sure and demonstrating to our owners that this is unambiguously great for them. This doubling that we talked about has nothing to do, nothing to do with any changes in the royalty rate, effectively, that we are charging to the program. Nothing. The increases that we're seeing on our side are even more significant for the funds that are flowing into the program, which allow us to spend on promotion, spend on marketing, spend on advertising for the benefit of our owners. We feel like that's a really critical dimension. We have another travel program called Unlimited Vacation Club, and we did extensive, exhaustive work to make sure that the owners were benefiting in equal measure to our guests and to Hyatt, because at the end of the day, that's the lifeblood for future growth.
Going and reevaluating something like that is a big deal.
Helpful. Another area of, I think, questions that we get is around the distribution side of the business. You have in the multi-year outlook, low single-digit growth, which is a little bit below the other fee growth in the algorithm. Can you talk to some of the assumptions, both near term and long term, to consider for this segment?
Yeah, I'll start off. I think that was really meant to mimic a, what I would consider a conservative outlook with respect to growth in total travel volumes from here, because travel volumes have come off. We are running at a lower rate than 2024 to 2025. 2025 was lower, 2026 is now lower. The reason is twofold. One, we've got Well, threefold, I guess. One is Jamaica, the hurricane. The second is the security concerns out of Puerto Vallarta in February of this year. The third is that the four-star segment of the volume of travelers that ALG Vacations serves has been under a lot more pressure than the five-star. That still represents a significant portion of the total revenue base. Those three dynamics are what has driven the top line, the total volume of travel down.
We look at where we are, which is Jamaica being rebuilt. All of our hotels are being rebuilt right now. They will be reopening probably in the first quarter of next year, really fully refurbished, so we'll have the best product. Mexico security concerns have abated a lot, and I had a picture from earlier in Puerto Vallarta, April.
Me.
Yeah, from you.
How was it? Yeah.
Yeah.
It's all good. I'm making a little pitch here.
There we go.
It's awesome.
It's safe. By the way, Americans are notoriously ignorant of.
It's called due diligence, folks.
Yeah. I would just say Americans are notoriously ignorant of geography. People read about something happening in Puerto Vallarta, and they won't go to Cancun. It's like saying there was a disruption in L.A., so you can't go to New York. Literally, that's not an exaggeration, by the way. Just look at the map. It's an amazing psychological phenomenon that we at some point will overcome as a country, we'll see. A 2%-4% total increase in travel volumes from the low points that we're at now, I consider to be a very conservative outlook.
There's some temporary things that are hitting it this year, but underlying maybe.
Yeah. I really, I'll say it again, I think it's a very conservative outlook. I think we're also working on a number of AI initiatives that will increase and improve efficiency. There are some additional opportunities in the white label space that I think we will be pursuing. Across the board, we've taken a low level, a low bar with respect to the performance that we outlined for distribution.
How integrated is that business with World of Hyatt and other aspects of the overall portfolio?
It's significantly integrated to the Hyatt Inclusive Collection. It represents about 15%-16% of the volume, something like that, into our resorts in the Americas. It's a significant channel for us.
Does that come down then?
No. Actually, in some ways, I think it's gone up.
Up? Okay.
Yeah. I think we're outperforming the market. The Hyatt Inclusive Collection hotels are outperforming the market. I think one of the drivers of that is our ALG Vacations. Actually, more and more volume into our hotel.
I loved the comment earlier about fees and money tied to room growth. The royalty rates are a component of that. Maybe if you can dig into it a little bit, double-click as they say, maybe put some takes to think about both international and domestic as we look at royalty rates, how those are currently structured and how they may change over time.
Well, in the U.S., this has been consistent for the contracts that we enter into in the U.S., that there's typically hurdles, right? We're earning top line, off the top line primarily. There are some incentive fees in the U.S., but it's 10% total incentive overall. Most of our incentive fees are outside the U.S., where those contracts are primarily smaller base fee than in the U.S. and a larger profit component. That profit component is typically not after a hurdle earned on the first dollar.
Right.
As we look into the future, two-thirds of our pipeline in North, but two-thirds of our pipeline full service hotels outside of the U.S. That's when we make this comment about the strength of the fees per room that are embedded, the stabilized fees per room that are embedded in our pipeline are very strong and are accretive to our existing base. That is about a third of our pipeline coming from select service hotels. That's how you can think about the future of the incentive fee mix, excuse me, the total fee mix. When we look at non-RevPAR fees, we expect those will be growing at above. That's [Resi], that's UVC, the Unlimited Vacation Club.
Where can the [Resi] business be? Is that mainly skewed towards the higher end?
Yes.
Yeah, it is. I have to say, this is remarkable to see, I think we did not actually appreciate the impact that having someone full-time dedicated with a great deal of experience in really bringing a business out of branded residential. We have a great leader on board right now, and the volume of activity has skyrocketed. We are seeing just enormous demand. The Thompson branded residential program in Mexico, which will translate into other parts of the world. The Standard standalone residential. We've gotten approached with other standalone [Resi]. The Park Hyatt branded residential activity has really expanded significantly. We're deliberately going after and really pitching in a very affirmative way where branded residential can make the biggest difference. The new Park Hyatt in Mexico City that will open later this year, a significant branded Resi component. Too does the Thompson in Reforma.
Too does the Thompson in Puerto Vallarta. We're seeing a significant measure of both lifestyle and luxury properties, branded [Resi]. Turks and Caicos, beyond Turks and Caicos will have a [Resi] program. This is going to be a growing component piece of our total fee base.
The fees there work where you collect a fee when it's sold and then an ongoing management fee going forward?
If we're managing the HOA, then we earn a fee on the HOA management, but for sure, the royalty upfront is-
Are you generally managing those?
We are.
Because I imagine there are also those.
Is they're integrated with hotels?
Yeah.
Even the standard, we are managing the standard HOA, the standalone [Resi], because there's no hotel associated with it. Yeah, in general and in the main, we will be managing the HOA.
Great. I'm going to get into the other topic du jour, which is more about demand trends. I guess I'm curious to hear what you're seeing across the environment as we look at different segments of demand, split between small, medium-sized business, large corporate, leisure, any other segments you'd like to dive into.
As we sit here today, and as compared to what we said on our first call, we feel really good, the better results than we had anticipated or forecasted in April and even into May, which is preliminary at this point. What's notable is that the U.S. is strong.
We feel good about what we've been experiencing. It's still short term.
Yeah
You know the booking window are not that long. Leisure is a little bit longer. To see the U.S. being as strong as it is, that gives great confidence in the near term and into the future. Group also has picked up as far as bookings go this year and the year for the year. Some of that is going to be coming through the summer months and the World Cup, but it's also going into the latter half of the year. Great numbers coming from the U.S. Outside, internationally, still very strong in Asia, Europe. The Middle East has been the one area, although it's gotten progressively better in April and now even in May. Sorry, in May compared to April.
Yeah.
I guess positive on the full year. We had given some Q2 sort of indication. We said about 3%. I feel very confident about that number, maybe a little better. Midpoint on the fees and EBITDA, mid-single digits growth rate.
I think it's between small and medium-sized businesses and larger businesses. We're seeing really persistent demand from our larger corporate customers, our managed accounts, global accounts. The small, medium-sized businesses also positive, not as much as larger businesses. The rate renegotiation also yielded single-digit increases for most of our managed accounts or volume accounts. We're seeing really pretty positive both group and transient travel out of our larger customers.
When you take a step back and think about those trends, which seem really healthy relative to the trend line we had been on for a little while last year. Certainly, there was a lot of noise with Liberation Day and otherwise. I'd say even if we went another year earlier, it would've been similarly choppy. What would make you get more confident that we're going to sustain these higher demand trends? What do you think the underpinnings are?
Well, I think there's a tremendous amount of economic Excuse me. Drink. Sorry about that. A lot of economic activity that's driving the core demand, I think for a pretty significant chunk of our business, because we're serving a higher income household and because leisure is now more than 50% of our revenue base, that is durable. We believe that phenomenon is a durable, reliable reality for us, no matter what happens in the rest of the economy. The upside and the downside is, in my opinion, revolving around one major issue, which is inflation, which fuel, because for lower income households or medium income households, fuel costs have impact on their travel budgets, on their discretionary consumer buying habits.
I would say if we see a more prompt conclusion of the Ukraine war, and then whatever recovery time and restarting time it takes to get fuel back online, refineries back online, LNG back online and on the water again, that'll tend to help bring inflation down, and I think that could be another way to sustain demand longer period. I generally agree with what you said. It's been choppy and unremarkable in 2024 and 2025. I think it feels more solid across the.
Maybe more normal.
More normal. Yeah.
Turning to capital allocation. One of the things that you referenced in the outlook was staying investment grade. Why is that a key focus for the company? How do you think about the value of that, especially as you move to this more 95% asset light and perhaps the business has greater visibility and flexibility?
Well, when you think about policies generally, right? This is very important to maintain consistent diligence discipline around your financial policy. It's been part of our policy for. We have benefited in times of volatility and uncertainty to be able to maintain our investment grade and rely on that to access capital markets and do it in a very constructive way. We will continue to maintain that because it's benefit.
Yeah, I mean, the quip that I always used was, first rule, we're in a cyclical business. Second rule, don't ever forget the first rule.
Maintaining investment grade's just a way for us to sleep better at night.
Makes sense. A follow-up to that, if you're looking at investing in growth, is there a range to think about in terms of leverage that you'd be willing to tolerate or even maybe be able to move outside of for a temporary window of time that might be outside of the typical investment grade band?
We already did.
Yeah.
At multiple times.
Exactly, right.
When we acquired ALG in 2021, we were outside band, so to speak, which is around a three times gross-.
Yep
Leverage. At that time, and then with Playa, too. We still have. I mentioned a little bit of de-leveraging that we need to do. It's a little bit get back, there's the grace period that we have.
Right.
Frankly, because we've maintained consistency with our financial policy, these types of grace periods and this commitment that we make means something to agencies and to our investors, because they know us to say what we're going to do and we do it.
One, committed to 95% asset light, that would generally mean higher free cash flow.
I think we-
I don't know what.
Sorry, not committed. That's an outlook.
Outlook.
Outlook.
Sorry.
Outlook.
Illustrative outlook, 95%. That would still mean that, yes, cyclical business-
Yeah.
Less operating leverage than previous.
Much less operating leverage.
That wouldn't change how you think about the leverage profile.
Not at this point.
Not at this point.
I think we want to maintain an investment grade.
Just keeps the flexibility. Well, Oh, go ahead.
If you've got a different perspective, we're open to your input, but right now.
Not yet.
that's where we are.
Not yet.
Okay.
Maybe in the future.
All right. We'll talk.
Well, please join me in thanking the Hyatt team for all their insights today. Thanks so much.