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Operator: Good morning. And welcome to the Hyatt Fourth Quarter and Full Year 2022 Earnings Call. After the speakers’ remarks, we will conduct a question-and-answer session . As a reminder, this conference call is being recorded. I would now like to turn the call over to Noah Hoppe, Senior Vice President, Investor Relations. Thank you. Please go ahead.

Noah Hoppe: Thank you, 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 Hoplamazian, Hyatt’s President and Chief Executive Officer; and Joan Bottarini, Hyatt’s Chief Financial Officer. 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 files. These risks could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued today, along with the comments on this call, are made only as of today and will not be updated as actual events unfold.

In addition, you can find a reconciliation of non-GAAP financial measures referred to in today’s remarks on our Web site 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 Web site for 90 days. And with that, I’ll turn the call over to Mark.

Mark Hoplamazian: Thank you, Noah. Good morning, everyone, and welcome to Hyatt’s fourth quarter 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, 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 $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 five 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, 2 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 in platforms that we acquired was approximately 8 times.

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. 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 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 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 to 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. 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 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 five 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 2nd. 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 fourth quarter 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 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. Results 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 at 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, system wide 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 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 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 John. 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.

Joan Bottarini: 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 of $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, including 2 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 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, and net finance contracts were $15 million. ALG 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 and three key areas drive 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 fourth quarter as compared to prior quarters due to typical seasonality.

As we look to 2023, we are optimistic about the first quarter 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 Americas 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, cash equivalents and short term investments, and approximately $1.5 billion in borrowing capacity on our resolving 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, and we returned 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 three year cumulative loss position for our US 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 US income level provide sufficient evidence that our US 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% 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. 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 onetime 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 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 2022 will not reoccur in 2023. Further details on this can be found on Schedule A11 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 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 and 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 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 will be hosting our Investor Day on May 11th of this year, at Secret Moshe and Secrets Impressions Moshe, two fantastic luxury all-inclusive properties in PlayaDelKarma 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.

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Operator: Our first question comes from Patrick Scholes from Truist Securities.

Patrick Scholes: I’mm getting a number of questions from investors about — and 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 new folks back from providing similar.

Joan Bottarini: Well, Patrick, I’ll start by giving you a sense of how the RevPAR guidance that we’ve provided will track human expectation for 2023. So if you think about the $1.65 billion that we generated in adjusted EBITDA, net deferrals and net demand contracts and then you remove from that the onetime 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 have continued to hold true at a point of RevPAR growth will lead to about $10 million to $15 million in EBITDA on the legacy Hyatt business. So 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.

I just want to make a couple of comments with respect to ALG. So as you think about that business and how well, exceptionally well, it performed in 2022, on all cylinders. We said all-time highs in that package RevPAR and the pricing associated with our membership club sales and also our package prices for ALG. As we look at this year, we look at net package RevPAR, we expect directionally similar dynamic between the first half and the second half. And a lot of that is driven by the business and the easier comps, if you will, in the first quarter and going into the second quarter. And the second half of the year will also have a moderated RevPAR — net package RevPAR growth rate. Finally, for vacations, vacations business. You might recall that in our second quarter earnings release last year, we noted that there’s a seasonally adjusted activity level for vacations, typically in the third quarter and the fourth quarter.

And what we saw in the third quarter really, really exceeded expectations. So this is what we call a shoulder period where demand is typically lower and 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 was exceptionally above our expectations. And so you’ll see in the fourth quarter of 2022, we saw a 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 dynamic first half, second half. And my final note is that in the fourth quarter on the vacations business, the other seasonal impact that we experience 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 for ALG going into 2023.

Mark Hoplamazian: I would just add two quick things, Patrick. 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 first quarter and that’s going to be by comparison to last year, a massive quarter. We’re seeing really solid pace, both for resorts, ALG up 30 US — I mean legacy Hyatt resorts bookings in January were plus 20%. So leisure is showing no signs of slowdown whatsoever. Group, I mentioned plus 21% pace into the year. We feel really strongly about that. We had pickup last year that was with — in excess of booked rooms on a consistent basis. None of that is included in that base number. And 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, they just have really weak citywide patterns.

But even with that, we’re showing really good pace because 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. So 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. But we feel like we’ll have dramatically better visibility post Q1 into Q2.

Patrick Scholes: That’s a great color there, a lot to digest. Just a quick follow-up question on the Hyatt Irvine. Would you consider that hotel sort of a temporary ownership until it’s sort of up and running and stabilized and that would be something you’d consider selling with a long term franchise or management contract?

Mark Hoplamazian: 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. 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.

Operator: Our next question comes from Stephen Grambling from Morgan Stanley.

Stephen Grambling: From a strategic standpoint, you completed a number of acquisitions, moving asset light. 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 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?

Mark Hoplamazian: A couple of 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 want to do some additional work in those areas, plus a lot of what we are spending in 2023 is actually enhancements of capabilities, specifically in digital. So the number one investment in the 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 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, and we signed up over 315,000 new World of Hyatt members at ALG properties.

So the World of Hyatt production for ALG properties is on a great ascendancy and 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 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 — well, 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.

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 dragged down by further integration efforts that are going to really consume a lot of our time and mind share. So we will continue to look for platforms. The key stream 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 enhance — strategically enhance the 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 Balearic Islands and the two feeder market into the Canary Islands.

So 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 to ALG, that’s an example of the 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 enhanced that relative to our original underwriting, which is why we’ve got a lot of momentum in those areas. So 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, 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 a number of experiences and the critical mass that we have to that high end traveler. 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 done — we’ve made tremendous progress against. So that’s where we stand at the moment.

Stephen Grambling: And maybe as a quick follow-up. The puts and takes that were outlined on the guidance seemed to get to, call it, a $1.2 billion EBITDA range, which would mean that you’re closer 2 turns of net debt-to-EBITDA versus peers more like 3 turns or above. Is that the right math and how are you thinking about the right leverage level in this rate environment and as you move asset light down the line?

Joan Bottarini: I would say, Stephen, that we are making great progress and in part due to the great performance, our great EBITDA performance and we’ve said on a growth basis that we’re targeting about 3% to 3.5%. So there’s different measurements 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 investments to be able to make decisions about how to invest back into the business and return capital to shareholders when appropriate.

Mark Hoplamazian: I would just add, we talk 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 is 100%. There maybe timing differences to 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. 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. So 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. And secondly — and thirdly, rather, the CapEx carry for the portfolio is coming down and will continue to come down. So I think those are the key drivers to having great confidence that our cash position and cash generation has really been transformed already.

Operator: Our next question comes from Joe Greff from JPMorgan.

Joe Greff: Two comments on how you’re thinking about 2023. One, would you expect ALG to grow adjusted economic EBITDA year-over-year, given the onetime benefit of $27 million from the travel credit expirations?

Mark Hoplamazian: I think the short answer is no, because there is — 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. So from a valuation perspective, it is relevant that that got released because they lapsed. A lot of the settlement with travelers who had books holidays that were not able to be taken because of COVID were settled in travel credit. These travel credits actually expired. So that’s actually what gave rise to that. But when we bought the company, we were not just familiar with it, we took into account in the liabilities that we assumed. So effectively, we took on the liability that turned out to be — have no costs associated with it.

So while it 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. But no, that’s a one-timer. Secondly, right now, we are assuming that the seasonality issues that Joan mentioned earlier will not look like they did in ’22, because it was exceptional that we filled in. And so we are basically expecting that we will return to a more normal seasonality effect. 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, the package RevPAR in January was up 42%, well ahead of our expectations, pacing for ALG is plus 30% for the year. Again, ahead of our expectations. And third, we’re growing, we’re adding properties.

So I think that there are offsets to some of the structural things that we’re expecting to impact ALG’s business. So I would say stay tuned. Right now, if things remain as robust as they started, we will be wrong about being able to grow from where we were in ’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 be tracking this extremely closely.

Joe Greff: And then finally, could you break down the rooms growth between ALG and Hyatt’s non ALG portfolio for ’23, the delta in ’23.

Mark Hoplamazian: In ’23, I think the growth is — ALG is up 12%. Is that right? Okay. So 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 8,400 rooms that we thought we were going to open. This year, they got pushed into ’23. But concurrently, we are taking the view that we will have a significant number that gets pushed into ’24 as well.

So it’s almost like the entirety of the 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 because of the markets in which they’re being constructed. So we have more durable and more higher visibility to the openings actually and construction being completed on time. So the biggest area where that dynamic is true is China. Things got shifted out to the right significantly and we’ll stay shifted to the right until probably sometime in ’24, 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, that’s not a 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.

But we did have significant conversions in ’22. We expect to have a fair number of conversions in ’23 as well, higher than our historic 20% to 25% levels, maybe not as tight as the 35% we posted in ’22, 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’re working. So therein lies the relatively higher growth rate for ALG relative to legacy Hyatt.

Operator: Our next question comes from Shaun Kelley from Bank of America.

Shaun Kelley: I was hoping we could get a little bit more color maybe on the owned and leased margins. You’ve done a great job 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 year over — versus 2019. As we start to get into a much more normalized environment, inflation having been a real cost over a four or 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 ’23 and beyond?

Joan Bottarini: So 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. And 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. So some of that is helping to minimize the wage inflation, wage rate growth that we’ve seen in the quarter. In the fourth quarter, we had an excellent result of 330 basis points, that’s on a comparable basis. You mentioned a 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 of SMB as 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.

Shaun Kelley: 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 by some of the different segments for ’23. 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 broader kind of high level industry. Any reason you see that we can’t get back to those types of levels once the development environment sort of stabilize and improves a little bit, appreciating some of the delays around China today and then probably some in the US as well. But 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?

Mark Hoplamazian: 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. So the transient profile that we realized we ended the fourth quarter — the fourth 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 or 12% of, so we see an improvement in that domain. And concurrent with that, we have volume account activity that will yield high single digit ADR increases.

So 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 a 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 of Hyatt program is gaining a lot of traction. We had — I think I mentioned in the script that we were 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 117,000 rooms. So 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 did.

Operator: Our next question comes from Dori Kesten from Wells Fargo.

Dori Kesten: How do you see the unit growth of AMR over the next few years change your regional exposure? I guess what I’m trying to figure out is that there’s greater exposure in Europe. Does that increase your likelihood of more brand acquisitions over there?

Mark Hoplamazian: So 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 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.

Dori Kesten: And within your legacy system, can you remind us what the typical difference is in spend for a World of Hyatt guests versus nonloyalty guests, and just how that’s changed over time?

Mark Hoplamazian: So 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 teens to 20% higher than non-World of Hyatt members, and that’s been consistent. We’re seeing that same dynamic, by the way, for World of Hyatt members staying at our all-inclusive resource as well. We’re just starting. I mean I’m actually extraordinarily encouraged to see 17% roomnight penetration by the end of the year for World of Hyatt members. This is 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. And so I have increased enthusiasm and confidence that we’re going to see a growing level of World of Hyatt engagement and penetration over time.

Dori Kesten: I may have missed this. But have you said what percentage do you think it could grow to over time?

Mark Hoplamazian: Well, right now, if you look at our Ziva and Zilara hotels, which don’t have the benefit of a captive wholesale platform to our operating 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, but direct digital, but whether that’s mobile web or app, second, World of Hyatt and 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, and he’s very enthusiastic about that. So I think the direct channel is going to continue to grow. And 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.

Operator: Our last question will come from Smedes Rose from Citigroup.

Smedes Rose: 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 you’re seeing in terms of — is that starting to kind of rev back up as well as operations overall?

Mark Hoplamazian: Yes. China is performing in a manner that we would have hoped it would, which is to see a significant snap back once restrictions were lifted. January was a stunning month of performance. And we started — just to give you a reference point for how extraordinary the volume, instantaneous volume of traffic is. The first weeks of February, we were at higher occupancies in our system in China than we did in the United States. So it has been just an amazing recovery that happened instantaneously. So our outlook for the year was probably quite conservative going 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 the year travel, and Lunar New Year was in January, which was just over the holiday period, I think we ran 15% above our prior peak.

So there’s 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 nothing elsewhere. The business travel is coming back. We see that, first and foremost, in our by Hyatt, which is our upper midscale 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. So we have a significant measure of growth ahead of us. We expect to open 24 hotels in China this year, that’s even with the construction lags that I referenced earlier, and 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 by Hyatt.

So it’s still dominated within our portfolio, not in the upper midscale 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 government controlled or own are digesting two things. One, they’re digesting still the aftermath of and some of the debt formation challenges that exist in China. But secondly, they have been targeted subsidies or targeted investments made by the government and 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 into the first quarter of next year will return. So we think that this year is going to be a bit sloppy as we work our way through some of those dynamics that I just described. But I 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.

Operator: This will conclude today’s conference call. Thank you for your participation, and have a wonderful day. You may all disconnect.