Good morning, and welcome to the Hyatt’s Second Quarter 2024 Earnings Call. All lines are in a listen-only mode. After the speakers' remarks, we’ll have a question-and-answer session. Thank you. I would now like to turn the call over to Adam Rohman, Senior Vice President of Investor Relations and FP&A. Thank you. Please go ahead.

Thank you, and welcome to Hyatt's second quarter 2024 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 start, I would like to remind everyone that our comments today will include forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K, quarterly reports on Form 10-Q, and other SEC filings. These risks could cause our actual results to be materially different from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued today along with the comments on this call are made only as of today and will not be updated as actual events unfold. In addition, you can find a reconciliation of non-GAAP financial measures referred to in today's remarks on our website at hyatt.com under the Financial Reporting section of our Investor Relations link and in this morning's earnings release. An archive of this call will be available on our website for 90 days. Please note that unless otherwise stated, references to our occupancy, average daily rate, and RevPAR reflect comparable system-wide hotels on a constant currency basis. Additionally, percentage changes disclosed during the call are on a year-over-year basis unless otherwise noted. With that, I'll now turn the call over to Mark.

Thank you, Adam. Good morning, everyone, and thank you for joining us today. I want to start by sharing my appreciation for our colleagues around the world who live our purpose every day to care for our guests, our colleagues, owners, and each other. I've been very fortunate to visit with many of you over the last quarter, and I'm continually inspired by the power of care and what differentiates Hyatt from others, our people. Our purpose and execution of our strategy are evident in our operating results, which reflect record levels of fees, record Hyatt numbers, and a rising pipeline. This morning, we reported system-wide RevPAR growth of 4.7%, and as anticipated, group and business transient were our strongest customer segments in the quarter. Easter taking place in the first quarter of 2024 was a tailwind for group and business travel in April and a headwind to leisure travel. Leisure transient revenue decreased approximately 2% in the quarter but was up 2% when excluding the impact of Easter, significant renovations at several key US resorts, and our hotels in Maui, which were negatively impacted by the wildfires in Q3 of last year. Through the first six months of 2024, leisure transient revenue was up 2% compared to 2023 despite these temporary headwinds, and we remained significantly above pre-pandemic levels. Looking ahead, transient pace for resorts in the Americas is flat in the third quarter, excluding resorts under significant renovation, while the pace for all-inclusive resorts is down slightly as demand in Mexico and the Caribbean reflects a return to pre-pandemic seasonality. Group room revenue increased approximately 8% in the quarter, with strong results in most US major urban markets during the months of May and June. Group pace for US full-service managed properties is up 7% for the second half of 2024. We anticipate higher growth rates in the third quarter compared to the fourth quarter. This is due to Rosh Hashanah and Yom Kippur falling in October this year compared to September of last year and the US elections in November. Looking beyond 2024, pace continues to be very strong across all group customer segments. Our business transient customer segment had the largest growth rate during the quarter with revenue up approximately 14%. In the United States, revenue increased 12%, and New York, Seattle, San Diego, and Washington, DC were the top-performing markets. Bookings for business travel over the next two months look very strong, led by corporate negotiated accounts. While there are signs of slowing demand in lower chain scales, we saw strength among the high-end consumer as luxury RevPAR increased 6.9% driven by hotels in Europe and Asia Pacific, excluding China. The solid quarter of group and business travel was reflected in our upper upscale brands, which produced RevPAR growth of 4.2%. Our solid operating performance reflects the strength of our growing loyalty program. World of Hyatt membership reached a new record of approximately 48 million members at quarter-end, representing a 21% increase over the past year. Loyalty room night penetration also increased, highlighting the strong engagement of our expanding membership base. Our growth strategy and expansion into many new markets, in addition to delivering authentic and personalized experiences, have led to member growth and increased loyalty penetration. Our expansion includes Mr. & Mrs. Smith, which realized significant engagement from our members after we added over 700 properties to World of Hyatt in April. 80% of these properties have received bookings from World of Hyatt members since going live, with nearly two-thirds of those bookings for paid reservations as opposed to the redemption of points. Our most active members, our global lists have been very engaged with Mr. & Mrs. Smith, accounting for over 20% of these bookings. By the end of this year, we expect to have over 1,000 Mr. & Mrs. Smith properties available through World of Hyatt, offering our members even more opportunities to earn and redeem points in these uniquely curated hotels. We also recently announced an exclusive alliance with Under Canvas, where we are engaging in outdoor hospitality with 13 locations in premier destinations such as the Grand Canyon, Moab, Yellowstone, and Zion. Global Hyatt members will be able to earn and redeem points at Under Canvas locations, further expanding our offerings and adding unique experiences for our members and guests. We have already seen great interest from World of Hyatt members with 60% of total bookings made at Under Canvas locations being for paid reservations since the partnership went live nearly two weeks ago. A few months ago, I visited the Under Canvas ULUM resort in Moab, named the Best Resort Hotel in Utah by Travel and Leisure, and I loved my overnight stay at Under Canvas North Yellowstone, Paradise Valley in Montana. Both destinations offer exceptional quality and immersive activities, which I'm excited for our World of Hyatt members to experience firsthand. We're also proud of the recognition that World of Hyatt continues to receive. WalletHub recognized the World of Hyatt as the Best Hotel Rewards Program and the World of Hyatt Credit Card as the Best Overall Hotel Credit Card. The continued recognition of World of Hyatt is a testament to the value that our loyalty program provides members and hotel owners. Our focus on expanding our network effect as we grow allows us to offer more options to our members, increasing their loyalty to Hyatt and making Hyatt more attractive to prospective developers. Turning to development, we continue to see strong demand for our brands as our pipeline reached a record of approximately 130,000 rooms. This represents a 9% increase year-over-year, and our pipeline accounts for 40% of our existing room base. Signings in the quarter were healthy across the world, led by the United States and Greater China, and we continue to see increasing interest in Hyatt Studios with the first two properties under construction. Our growth pipeline continues to drive expansion of our portfolio worldwide, and in the quarter, we achieved net rooms growth of 4.6%. Notable openings include the Park Hyatt Changsha, the tenth Park Hyatt in Greater China, and the Hyatt Vivid Grand Island in Cancun, our first high-vivid all-inclusive property. The Hyatt Vivid Grand introduces a younger generation to a vibrant, adult-only all-inclusive experience with a focus on meaningful connections through experiential offerings. We opened our first Caption by Hyatt properties outside of the US in Shanghai and Osaka. Finally, the Legend Resort Paracas opened in the quarter, a stunning resort on Peru's Southern Coast and our first destination by Hyatt property in Peru. Our openings this quarter strengthened the equity of our brands and opened new markets for our guests and members, and we're confident that the pipeline will continue to fuel growth well into the future. The pipeline will continue to expand as we strategically enhance our brand portfolio. On June 28, we announced the acquisition of me and all hotels brands from Lindner Hotels Group, allowing us to accelerate growth of the brand. We're really excited about the growth trajectory and great potential for me and all hotels over the decades to come for three key reasons. First, me and all hotels is a highly attractive lifestyle brand in the fast-growing upscale segment in Europe. The brand is well suited for adaptive reuse and conversions, facilitating growth in great locations to fill significant whitespace that Hyatt has across Europe. Second, me and all hotels deliver high margins, allowing developers to realize attractive returns that are required for lease structures, which are common in Europe. This lease-friendly brand enhances operational flexibility and greatly expands our access to capital sources across Europe. And third, it is important to note that strategic positioning and brand mapping are designed to aggressively expand and capture market share across Europe. While we expect the brand to gain scale in Europe initially, we believe there are opportunities to grow the brand globally, providing more destinations for our members and guests to enjoy a curated lifestyle experience. We have been and will continue to be very intentional with our organic and inorganic growth, ensuring that our brand and property portfolio expansion creates opportunities for new guests to find us and join World of Hyatt while providing existing members and guests new and exciting places to enjoy great experiences. Turning to asset sales, we completed the sales of Park Hyatt Zurich, Regency San Antonio, and Hyatt Regency Green Bay during the second quarter, as previously announced. With these sales, we have realized $1.5 billion in gross proceeds from asset sales towards our $2 billion commitment. We expect to close the sale of the property that is currently under a purchase and sale agreement by the end of August, which will put us above our $2 billion disposition commitment. We will provide more details on that transaction when the deal closes. Before I conclude my remarks, I'm pleased to report that we recently published our annual World of Care highlights, demonstrating progress towards our Change Starts Here goals and environmental sustainability goals, including our science-based targets. While we have more work ahead of us, I'm exceptionally proud of the progress that we made, led by our Hyatt colleagues worldwide. In closing, we are pleased with the execution of our long-term strategy, which we highlighted at our Investor Day last year, maximizing core business, integrating new growth platforms, and optimizing capital and resource deployment. Our growth across multiple dimensions, including rooms, fees, pipeline, and loyalty membership fuels our asset-light business model leading to strong free cash flow and greater value for our shareholders. I want to thank Hyatt colleagues around the world who live our purpose every day to care for people so they can be their best, which extends to each of our stakeholders. Joan will now provide more details on our operating results. Joan, over to you.

Thanks, Mark, and good morning, everyone. System-wide RevPAR increased 4.7% led by increased business and group travel. In the United States, RevPAR increased over 2%, reflecting the timing of Easter and strong results from group business transient travel. Large corporate accounts contributed to both group and business transient travel, benefiting hotels in major urban markets. As Mark noted, we are lapping challenging comparisons in Maui due to the wildfires in the third quarter last year, and we have several resorts undergoing exciting transformational renovations. The Confidante is being rebranded as Andaz Miami Beach, while Hyatt Regency Scottsdale and Hyatt Regency Indian Wells will be rebranded under the Grand Hyatt brand later this year after extensive renovations. RevPAR growth in the Americas, excluding the United States, increased approximately 9% with notable strength in Canada and South America, while our all-inclusive properties in the Americas had net package RevPAR growth of 2% for the quarter. In Greater China, RevPAR decreased by approximately 3%. As a reminder, the second quarter of last year saw a dramatic recovery for domestic travel, and RevPAR surpassed pre-pandemic levels for the first time. We expected growth rates to normalize starting in the second quarter this year. However, unfavorable macro conditions and greater outbound Chinese travel negatively impacted results in the quarter. Domestic travel was down 9% in the quarter compared to last year, with a notable impact on hotels in secondary and tertiary markets. While we saw positive RevPAR growth in most major markets, this could not offset weaker demand in secondary and tertiary markets. Despite these pressures, we increased our RevPAR index by approximately 3% during the quarter, which is a testament to our strong brand recognition in China. Although domestic travel declined, we're seeing demand for travel from affluent customers increase. However, they are prioritizing international travel, and we expect outbound travel from China to remain at elevated levels in the near term. Asia Pacific, excluding Greater China, once again produced remarkable results, with RevPAR up approximately 18% due to strong international inbound travel with notable demand coming from Greater China and the United States. RevPAR in Japan increased 35% and RevPAR in South Korea increased 20%. In Europe, RevPAR increased approximately 11% driven by outbound travel from the United States with notable strength in Germany and Spain. Our European all-inclusive properties produced impressive net package RevPAR growth of approximately 12%, driven by high demand for our resorts in the Balearic and Canary Islands. We reported record gross fees in the quarter of $275 million, up 12% due to a combination of our RevPAR growth, greater system size, and an increase in our non-RevPAR fees. Franchise and other fees increased 32% due to the growth of our franchise footprint, growth in our co-branded credit card fees, and the contribution from UVCCs. Base fees increased 4%, reflecting the combination of increased managed RevPAR and fees from newly opened managed hotels, offset by hotels in Greater China. Incentive fees decreased approximately 7% due to lower contributions from hotels in Greater China, hotels under renovation, and in Maui. Turning to our segment results, management and franchising segment adjusted EBITDA increased approximately 11%, driven by the increase in our gross fees. The owned and leased segment adjusted EBITDA increased by 9% when adjusted for the net impact of transactions. Business transient revenue for the portfolio increased by double digits during the quarter, and the contribution from group and related food and beverage revenue was strong. In the quarter, margins for comparable hotels increased 110 basis points. We expect that we'll achieve flat to moderate expansion of owned and leased margins for the full year compared to 2023. Finally, our distribution segment adjusted EBITDA increased $9 million compared to the second quarter of 2023. Excluding UVC, adjusted EBITDA declined by approximately $5 million, consistent with the expectations we communicated during our first-quarter earnings call. We expect third quarter adjusted EBITDA for ALG Vacations to decline approximately $5 million compared to last year due to a combination of cancellations related to Hurricane Barrel and weaker bookings over the last few weeks due to the temporary system disruptions impacting airline bookings. However, we anticipate fourth quarter adjusted EBITDA for ALG Vacations to grow by approximately $10 million compared to last year because of improved airlift. I'd like to now provide an update on our strong cash and liquidity position. As of June 30, 2024, our total liquidity of approximately $3.5 billion included $2 billion of cash, cash equivalents, and short-term investments and approximately $1.5 billion in borrowing capacity on our revolving credit facility. At the end of the quarter, total debt outstanding was approximately $3.9 billion. The increased levels of debt and short-term investments this quarter result from the notes we issued in June. We invested the proceeds from these notes in marketable securities and are planning to fully repay our notes maturing on October 1, 2024, at or prior to maturity. In the second quarter, we repurchased $134 million of Class A common shares and we have approximately $1.6 billion remaining under our share repurchase authorization. We remain committed to our investment-grade profile, and our balance sheet is strong. Before I turn to our 2024 outlook, I'd like to note a change that we made to our financial reporting. We've added a new financial line item to the income statement called transaction and integration costs, which includes integration costs for recently acquired businesses and transaction costs for certain pending and completed transactions. We now exclude transaction and integration costs from adjusted EBITDA, as we believe this better represents our core operations and provides information consistent with how our management evaluates operating performance. Now I will cover our outlook for 2024. The full details can be found on page 3 of our earnings release. We expect full year system-wide RevPAR growth between 3% and 4% compared to 2023, and we expect group and business transient revenue growth to outpace leisure transient for the second half of the year. We anticipate United States RevPAR growth for the full year of approximately 2% compared to 2023, led by group and business travel in the third quarter. Our outlook assumes RevPAR growth in Greater China is negative for the last two quarters of this year compared to last year as domestic travel laps tougher comparisons to 2023 and outbound international travel increases. Finally, we expect RevPAR growth in other international markets to exceed the high end of our range, led by Europe and Asia Pacific, excluding Greater China. We expect net rooms growth between 5.5% and 6%, driven by organic growth, conversions, and potential portfolio transactions that may close by year end. Gross fees are expected to be in the range of $1.085 billion to $1.115 billion, a 13% increase at the midpoint of our range compared to last year. Our revised outlook accounts for lower incentive fee contribution in the second quarter from hotels in Greater China, weaker-than-expected demand in Maui, and hotels under renovation. Our outlook also assumes lower fee contribution from hotels in Greater China during the second half of 2024 and a lower fee contribution from hotels in the United States during the fourth quarter. Adjusted G&A is expected to be in the range of $425 million to $435 million. Adjusted EBITDA is expected to be in the range of $1.135 billion to $1.175 billion, a 10% increase at the midpoint of our range compared to last year. Our outlook accounts for the removal of about $10 million of integration costs related to the change to adjusted EBITDA I just mentioned and reflects the reduction that we have made to our RevPAR range and growth fees. Free cash flow is expected to range from $560 million to $610 million. Finally, we expect capital returns to shareholders in the range of $800 million to $850 million, including share repurchases and dividends. In closing, our second quarter results highlight the strength of our asset-light business model, and our mix of asset-light earnings will increase further as we complete our asset disposition program and realize our net rooms growth expectations. We remain committed to our capital allocation strategy, which has delivered and will continue to deliver exceptional shareholder value by investing in growth, maintaining an investment-grade profile, and returning capital to shareholders. This concludes our prepared remarks, and we're now happy to answer your questions.

Our first question will come from Shaun Kelley from Bank of America. Please go ahead. Your line is open.

Good morning, everyone. Thanks for taking my question. I had sort of a two-parter on just what's going on in the leisure transient area. So Mark and Joan both, I think you mentioned this throughout the script around kind of what you're seeing there. But can you just elaborate a little bit across the US specifically, in terms of patterns and how, let's call it, de-risked you think your outlook is from here, specifically on the leisure side? And then secondarily on that, could you comment specifically on, I think, some comments around the Caribbean and Mexico in the prepared remarks, Mark, I think you said something about a return to pre-pandemic seasonality? And if we take the hurricane out of it, just what are we seeing on the ground across ALG and the Caribbean and Mexico? Thanks.

Thanks, Shaun. I'll begin, and Joan will provide additional insights. We're comparing our results to some atypical periods from last year, which involved significant calendar shifts and high demand at certain times. Currently, we're witnessing a normalization of demand over time. The disruption in airline traffic from system outages was a temporary setback but caused considerable booking disruptions. We are also facing challenges with two major resorts undergoing full renovations, along with the well-known issues in Maui. Overall, demand remains strong, significantly exceeding pre-pandemic levels, and our rates are stable and slightly increasing. I believe we are sustaining a high demand level. Our outlook suggests a potentially challenging third quarter, followed by a stronger fourth quarter, based on the airline schedules and overall booking demand we’re observing. The booking trend resembles a wave curve for cruises, with notable increases in October and November as we head into the festive season and next year. We'll have more clarity on bookings during the next quarterly conference call.

Yes. Regarding your question about the all-inclusive market in the Caribbean, we had a very strong first quarter with double-digit growth in net package RevPAR. In the second quarter, we saw about a 2% increase. Looking at the first half of the year, that averages to approximately 7%, which is quite strong. The dynamics between the first and second quarters were influenced by the Easter holiday. Moving forward, as Mark mentioned, the third quarter faced temporary disruptions due to an early hurricane and system issues. However, as we approach the fourth quarter, we are seeing bookings pacing into the festive season in the mid-single digits. Overall, we have sustained momentum in the leisure sector in the Caribbean, and we anticipate that the full year will also fall within that mid-single-digit range.

Just a quick addition. There was a 2% growth in the second quarter in the Americas. However, when considering our overall portfolio globally, it was up 3% because Europe continues to improve, even as we compare against strong results from last year. We are really encouraged to see that progress as well.

Our next question comes from Joseph Greff from JPMorgan. Please go ahead. Your line is open.

Good morning, everybody. Thanks for taking my questions. I have a multi-part question for you, Mark. Can you talk about what the recent trend lines are in China development and pipeline signings, construction starts? How much of a difference is there between full-service and select-service hotel activity there? And maybe provide some perspective on how much dependency on the 5.5% to 6% net rooms growth is China-related?

Certainly. First, China, particularly Greater China and the Asia Pacific region, has been our top area for open rooms and pipeline growth. Together with the Americas, these regions account for most of the changes we've witnessed in our pipeline and openings. We are experiencing a growth rate that exceeds our openings. Not only are we seeing new openings, but they are also significant ones. For example, we recently launched the Park Hyatt Changsha and the Grand Hyatt Kunming, marking the 18th Grand Hyatt Hotel in Mainland China. This highlights the remarkable network effect among our highest-end brands in the country. I'm pleased with the completion rates, which isn't surprising since many of our partners are state-owned enterprises. It's important to note that the new openings we're discussing are mostly high-revenue hotels, rather than being heavily skewed towards UrCove, although UrCove is performing well and continues to expand steadily in the upper mid-scale segment in China. Regarding the overall impact of growth in China on our annual averages, I can't provide that information right now but will follow up later. The ongoing signings indicate robust strength and a solid foundation for future growth in China. Overall, I'm feeling optimistic. There are many headlines to sort through, and while there are various disruptions visible in the market, these tend to be more pronounced at lower chain scales. This is what we are observing in China, although some of our luxury hotels have also felt the effects from high-end Chinese consumers who are increasingly traveling abroad.

Great. Thank you. And then just a quick follow-up. Joan, how do you plan to use the $500 million plus of proceeds from this sale, which you expect to close later this month? Obviously, you have enough liquidity and cash to take care of debt maturities from the end of this year to the end of 2025?

So, Joe, as Mark mentioned, we will announce any transactions when we close. When we do that, we will update all components of our outlook that are impacted by the transaction, including shareholder returns. So, stay tuned for that announcement when we're ready to do it.

Thank you.

Our next question comes from Dan Politzer from Wells Fargo. Please go ahead, your line is open.

Hey good morning everyone. Mark, I believe you mentioned that group was pacing, I think, up 7% in the second half of this year. Can you maybe talk about how it's pacing for 2025? And in terms of this year and next year, how much is on the books at this point and maybe give some historical context with how that's compared in the past?

Absolutely. I've been really impressed with how strong group has been overall. It's both short-term and long-term, and the short-term vicinity, July was extraordinarily strong in terms of total bookings. Full cycle, net production in the month was up 16%, a third of that was in the month for the year. So, we saw the third quarter actually impacted by a very strong July booking activity base. August through December pace is up 6%, ADR is up 5% in the year for the year bookings. So, the bookings that we're getting are not just filling rooms at compromised rates. We are realizing great ADRs. For 2025, we see equally strong readings. ADR represents the vast majority of the over 7.5% pace increase. Tentatives are running way ahead of anything we've ever seen at this time of the year ahead of 2025. So we not only have great pace heading into next year, but we also have a swelling of tentative business that is really striking. The sales force has really taken growth ahead. Right now, we have about 60% of our total business on the books for next year. This sort of addresses your other question. By the way, just as a quick note, pharma and tech are leading the way with respect to the July was dominated by pharma and tech. And all of our categories in terms of both association and corporate and across a number of different segments. I would add financial services to the pharma and tech comment, are all pacing well. So, this is not like association has taken over and is pulling up on average. This is very well-balanced and widespread.

Got it. Thanks for the detail. And then in terms of the incentive management fees, Joan, I think you called out China, renovation, Maui, certainly headwinds in the back half of the year. But as we think about third quarter versus fourth quarter, should we see it start to grow again in the fourth quarter as you get through some of those? Or should we expect this to be down for the remainder of the year?

Yeah. So with respect to fees overall, the change in our outlook that we provided reflects a 13% growth year-over-year. So I just wanted to reinforce that point at the outset. And the change we made to our outlook at the midpoint, the $15 million, the breakdown between that is about 50% drove by our IMF and driven by basin incentive fee. Also about 50% through China and what we're seeing there, the dynamic there in demand and the remaining by US and a little bit of FX that we're seeing. So it's concentrated in those two areas. And you saw the performance in the second quarter. As you look at that and think about the rest of the year, we anticipate that we'll be performing better relative to last year in the second half as it relates to incentive fees.

Just to clarify, sorry, Joan, you said base in incentive, you meant base in franchise fees.

Understood. Thank you so much.

Thank you.

Thank you.

Our next question comes from Michael Bellisario from Baird. Please go ahead. Your line is open.

Folks, good morning, everyone.

Good morning.

Good morning.

Regarding net unit growth, you achieved approximately 1% in the first half of the year. Were your openings below expectations, or did you experience any significant deletions during the quarter? Additionally, for the second half, could you explain the factors influencing your projections for the low and high ends? Also, could you share more information about the potential portfolio transactions you mentioned? Are these organic strategic deals, or do they involve potential brand mergers and acquisitions? Thank you.

Thanks. First of all, there were some terminations and they were not particularly outsized, but they did affect the first half. As we look forward, we've got a pretty robust opening schedule for Q3 and Q4. I would quickly add, in Q2, for example, our room openings were about one-third conversions. We actually believe that we will end the year with closer to 50% of the total net rooms growth being conversions. Those conversions are known to us but also some that are subject to completing some other transactions that we're working on right now. Since the first quarter of this year, I've been talking about the fact that we see robust opportunity and real opportunities, not just theoretical, to do portfolio deals. Sometimes that means doing a strategic partnership like the Lindner Hotels deal, where we signed franchise agreements for all of those hotels. Sometimes they come in the form of an acquisition of a brand or a management platform like we did with another brand of hotels, just as one example. We have in the hopper at this point, and we've been working on several that we feel really good about. Now it's now August 5, and whether we have everything closed and those hotels in the system to count as net rooms growth at December 31 or sometime in January, I can't tell you that. I don't care because the point is not to make a particular date; it's that the overall rate of growth and our momentum is maintained. So we do expect more conversion activity, but I don't want to imply that this is an open opera. We've applied a tremendous level of data and analytics to the markets that we believe would provide the biggest network effect. We've done it by price point and by brand segment. We have cross-matched that with a huge number of portfolios that we've identified and qualified across the globe. We did all that work in the third and fourth quarters of last year. That's proven to be extraordinarily helpful in focusing our resources and time and attention. We're also very focused on making sure that we understand the customer base like we always do. Each of these acquisitions or partnerships that we engage in has embedded growth already identified and is asset light. Those are the principles that we continue to follow.

That’s helpful. That was going to be my follow-up. Thank you.

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

Hi, thanks. You called out the lease structure in Europe is allowing for rapid expansion in the region. How should investors think about the cyclicality of the fees associated with that growth versus the US? And does the structure alter how we may need to think through how that market could scale, or its sensitivity to things like interest rates?

So Stephen, I apologize, but I didn't catch the main point of your question at the start. Could you please repeat the beginning part of your question?

Just understanding the cyclicality of these lease-oriented management rates in Europe and how to think about the scaling in that region?

I don't view it as cyclical. Naturally, it's influenced by prevailing rates. In Europe, a significant portion of ownership and transactions are conducted through leases. We have very few leases in our portfolio in Europe, having only about five leased hotels globally. Managing leases isn't really a preferred ownership class for us. That said, there are many experienced developers and owners in Europe who are proficient with leases but may not engage in various deal structures. Historically, we haven't concentrated our efforts on this capital base, but we are now able to explore opportunities through hotel acquisitions and by building relationships with other brands, predominantly in the select, upscale, and upper midscale segments. This is exciting because it represents a large capital base; some institutions are substantial and have even ventured into the U.S. to serve as lessors for hotels. However, this is not a model we favor, and at present, we are not considering any global projects where we would act as a lessee. Instead, collaborating with lessees to become the hotel manager or franchisor presents a significant growth opportunity for us in Europe, particularly.

So that all makes sense. I guess, as a clarification, are these management fee structures or franchise fee structures unique or different relative to the US or other markets, just given the unique ownership structure being leased?

No, they're quite typical, actually. The rates may vary, such as royalty rates or rent amounts, but generally speaking, most of the Lindner portfolio is leased by the Lindner group. They are the lessee, and we are the franchisor. They are also the manager. Our arrangement with them is a standard one. The terms of those franchise deals are similar to what you would find in a typical franchise agreement with an owner instead of a lessee.

Our next question comes from Richard Clarke from Bernstein. Please go ahead. Your line is open.

Hi. Good morning. Thank you for taking my questions. I want to discuss the revised full year guidance. Reflecting on the Analyst Day from last year, it seems that to achieve your 2025 targets, you will need to increase EBITDA by approximately 14%, boost free cash flow by around 28%, and reduce CapEx by nearly 41%. Given the current situation in 2024, how confident are you in reaching those 2025 goals?

Thank you, and good afternoon, Richard. The outlook is somewhat tied to the overall economy and how macro factors influence it. While it’s important not to overly interpret macro indicators from this current short-term and highly disruptive period, we focus on the general economic health and growth rates in our key markets. The public markets have indeed faced significant disruption, but this does not indicate a major disruption in the US economic outlook. Additionally, interest rates have decreased by about 40 to 50 basis points in the past five or six days. The floating rate market remains stable, with only slight widening of spreads. I believe we are well-positioned for growth in openings and net room expansion, assuming we see future rate adjustments and improvements in the financial market environment. Capital expenditures have been declining, and I am optimistic about our current outlook, which is expected to decrease further next year. We are on a path of reducing CapEx and increasing conversion from EBITDA to free cash flow due to our asset-light strategy. Overall, I feel positive about our outlook. We are currently tracking below the 6% to 7% net room growth target established during Investor Day, but I see this as temporary. It’s unclear whether we will fully recover to our long-term sustainable growth rate by next year or if it will take a year and a half, but the general trajectory aligns with what we discussed at Investor Day.

Okay. Makes sense. Maybe just as a follow-up, you've changed the definition of EBITDA, moved the transactional cost out of that. I guess in my experience, companies often do that when they know they've got a big cost coming up. So maybe what's the thesis behind making that definitional change to adjusted EBITDA?

Sure. Richard, the rationale was pretty simple. These are onetime costs that we experience in relation to our integration activities and also our transaction activities. As we consider true core earnings in EBITDA, we felt as though it was a better representation to remove these and also provide visibility to all of you with respect to what those costs are outside of adjusted EBITDA. Integration costs, you'll have seen that we've put on a separate line, and you'll see all of that through 2023. We've recast that in the first quarter. For transaction costs for last year, we assumed about $10 million within the 2023 annual year. With transaction costs, they can be variable from quarter to quarter. We have very few dead deal or abandoned costs. When we close on asset sales, they run through our G&A and are re-reported into a gain and loss on the sale of an asset. When we acquire a company or undertake a transaction like we did with UVC, they get recorded into the asset base. This is why we made the change; the onetime and variable nature of these costs led us to look at our operating core performance without those two items. So now they're on a separate line item going forward.

I would also point out, Richard, that I caught your implication that this might have to do with an outlook that includes some disruption regarding the line item; that's not the case. If we could predict with precision what the transactional activity would look like and exactly how that fell over a given quarter, we likely would be making a lot of other prognostications and would be magical in some fashion. The uncertainty is such that we could never plan around something like that, just to be clear.

Our next question comes from Patrick Scholes from Truist. Please go ahead. Your line is open.

Hi. Good morning. Just a couple of questions on China and incentive management fees. Currently, right now, what percentage of your incentive management fees do come from China? And how does that historically compare? And then, my follow-up question is, what is your visibility into RevPAR or bookings in China? Basically, what is the booking window for your Chinese business? Thank you.

Let me confirm the details, Patrick. In terms of the composition of the China incentive fees as a percentage of the total, I can say that the fees from Greater China represent a high single-digit percentage of our overall base. More than 90% of our hotels in Greater China are earning incentive fees based on the first dollar of gross operating profit (GOP) we generate. This structure has remained fairly consistent over time, though it may be slightly lower than last year. Considering the current operating environment, RevPAR was negative in the recent quarter, and our demand expectations moving forward are influenced by travel trends outside of outbound China and in other parts of Asia Pacific, along with a decline in domestic travel. We anticipate this trend will persist in the latter half of the year, affecting both top-line RevPAR and the total revenue for Greater China. This situation is contributing to a negative growth rate in RevPAR, which then impacts total revenue and our GOP margins. Therefore, we are earning less in fees from Greater China than we had anticipated this quarter, and this is factored into our full-year outlook regarding the revised expectations for RevPAR.

He also asked about booking curve.

And the booking curves, yes, the window. It's always been very short in Greater China. Relative to other regions of the world, one of the primary drivers of that is the group business. In the US, our group business is about 30-plus percent. So we obviously have more visibility to group for longer periods into the future. In China, it's closer to 10%. That's part of the visibility. In China, it can be days in many markets, where the booking windows fit. Right now, we're seeing very short windows consistent with what we typically experience.

I would state that the level of outbound travel is significant, probably higher than we would have otherwise thought. We have noted for a couple of quarters now that we believe outbound lift into China will improve in the fourth quarter or towards the end of the year. We have not had that offset in China to-date. If you go to pre-pandemic levels, there was plenty of outbound travel. Everyone talked about the outbound travel from China being a major driver of global travel demand. If that was true then and it's beginning to be true again. What was balanced then is an equal measure of high-rated business coming into China; that's not present currently.

Our next question comes from Chad Beynon from Macquarie. Please go ahead. Your line is open.

Good morning. Thank you for taking my question. Regarding the RevPAR guidance, can you discuss any changes related to the two components, ADR and occupancy? Additionally, looking beyond 2024, do you anticipate that future gains will stem more from ADR, or are there still opportunities for improving occupancy? Thank you.

Yes. The composition, Chad, is about split the way we're looking at our forecast for the remainder of the year. We do have a strong group in the second half on the books. You heard our pacing numbers at 7%, with a healthy portion of that being rate growth. It skews a little bit more towards rate. We still have occupancy opportunities. We've realized greater demand in the first half from business transients, which has been lagging for us, and those occupancy rates in our convention and business hotels are much closer to pre-pandemic levels. There is certainly still room for growth on the occupancy side. Looking forward, our group bookings are nicely split between occupancy and rate. So we have opportunities on both fronts.

Thank you, Joan. And then with regard to rooms under construction, how is that pacing against the pipeline? And what do you think the biggest catalyst would be to get more of these pipeline rooms kind of shovel-ready?

Yes. Thank you. Over the course of the last several years, we've moved our percentage of the pipeline under construction from the high 30s to the low 30s, which is where we are now. We have roughly 40,000 rooms under construction at the moment, representing about a 2% to 2.5% decline year-over-year in terms of rooms under construction, not surprising given the environment. However, these are the facts that are associated with that. China overall is a bit lower than that regarding the proportion of the pipeline that's under construction. Part of that has to do with the fact that we've executed quite a few agreements to execute some conversions in China, which inflates the pipeline that ends up in production earlier. So it's not under construction; it may be under renovation or something else, not technically under construction. The dynamics that would significantly change what we're seeing currently are availability of capital for new starts in the United States, which is likely number one, and a more favorable lending environment in China. Most of our hotels are signed with state-owned enterprises, so we haven't been significantly impacted by that. However, it still has a marginal impact with respect to private developers who depend on the debt markets in China to fund their projects. Thank you.

We are just out of time for questions. I'll turn it back over to Mark Hoplamazian for closing remarks.

Thanks. I just want to thank all of you for your time this morning, and we continue to appreciate your ongoing interest in Hyatt. We look forward to welcoming you to our hotels so that you can help our RevPAR outlook and otherwise experience the power of care as delivered by the Hyatt family. We wish you all a great day ahead. Thank you.

This concludes today's conference call. Thank you for participating, and have a wonderful day. You may all disconnect.