Hyatt Hotels Corp Q2 FY2025 Earnings Call

Good morning, and welcome to the Hyatt Second Quarter 2025 Earnings Conference Call. As a reminder, this conference call is being recorded. I would now like to turn the call over to Adam Rohman, Senior Vice President of Investor Relations and Global FP&A. Thank you. Please go ahead.

Thank you, and welcome to Hyatt's Second Quarter 2025 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 under the Financials section of our Investor Relations website and in this morning's earnings release. An archive of this call will be available on our website for 90 days. Additionally, we posted an investor presentation containing supplemental information on our Investor Relations website this morning. Please note that unless otherwise stated, references to occupancy, average daily rate and RevPAR reflect comparable system-wide hotels on a constant currency basis. Percentage changes disclosed during the call are on a year-over-year basis, unless otherwise noted. With that, I will now turn the call over to Mark.

Thanks, Adam. Good morning, everyone, and thank you for joining us today. I would like to start our call by saying how proud I am of our team's accomplishments over the last quarter. I'm thrilled that we closed on the acquisition of Playa Hotels & Resorts and entered into an agreement to sell the entire Playa Real Estate portfolio. I would like to extend a warm welcome to the Playa colleagues who joined the Hyatt family. We are very excited for what lies ahead and the expertise they bring to Hyatt. Our operating results this quarter are a testament to the power of our brand-focused strategy, the strength of our network and the dedication of Hyatt colleagues across the globe. For the 12th consecutive year, Hyatt was nominated to Fortune's 100 Best Companies to Work for, underscoring how we've been able to maintain our culture of care even as we have significantly grown and transformed our business. I want to thank all of the Hyatt colleagues across the globe for their continued care for our guests, customers and each other. Before I cover results, I'd like to provide an update on our transaction activity, starting with the acquisition of Playa Hotels & Resorts, which was completed on June 17. This transaction included the acquisition of 15 all-inclusive resorts, including 8 existing Hyatt franchise resorts under our Hyatt Ziva and Hyatt Zilara brands. On June 30, we announced that we entered into an agreement with Tortuga Resorts to sell the entirety of the real estate acquired as part of the Playa transaction for $2 billion with the ability to receive an additional $143 million if certain conditions are met. We are pleased to be entering into this agreement with an ownership group that has deep knowledge and experience in the luxury all-inclusive space. Concurrent with the sale, which we believe could close by the middle of the fourth quarter, we will enter into 50-year management agreements for 13 of the 15 resorts. In 2026, we expect to earn an additional $60 million to $65 million of management fees, net of franchise fees that we previously would have earned from Playa. We also expect to generate earnings through our distribution platform. Upon stabilization in 2027, we expect the implied multiple on the net purchase price for the asset-light business to be 8.5x to 9.5x, a very strong outcome, consistent with our stabilized valuations on asset-light acquisitions since 2017. We are extremely pleased with the terms of the transaction and the speed at which we were able to execute. We expect the transaction to be accretive to shareholders in the first full year. This transaction demonstrates our commitment to our asset-light business model while continuing to strengthen our brand portfolio and leadership in the luxury all-inclusive segment. We also continue to make progress to sell several of our owned hotel properties. The 3 hotels that were under a formal marketing process last quarter are now subject to an exclusivity agreement, and we expect to sign a letter of intent soon. We also have one property that is under a signed PSA and 2 that are under a letter of intent. We remain under contract for the sales of Hyatt Grand Central New York and Andaz London Liverpool Street, but we do not expect either of those transactions to close this year. We will share additional updates as these transactions progress, and we continue to expect our asset-light earnings mix to exceed 90% by 2027. Now turning to operating results. This morning, we reported system-wide RevPAR growth of 1.6% for the quarter or 2.2% when adjusting for the shift of Easter from the first quarter in 2024 to the second quarter in '25. RevPAR growth was strongest among our luxury brands as high-end consumers continue to prioritize travel. Leisure transient RevPAR was up 2.6% to last year, reflecting the shift of Easter and increased approximately 6% for our luxury brands. All-inclusive net package RevPAR increased 6% compared to the second quarter of 2024 in the Americas, highlighting the continued strength of luxury all-inclusive travel. Business transient RevPAR was flat in the quarter with the United States declining by 1.5%, driven by select service hotels. Business transient RevPAR was up in the low single digits for our full-service U.S. hotels as well as hotels in Europe and Asia Pacific, excluding Greater China. Group RevPAR in the quarter was up 0.3% to last year and increased 1.1% when accounting for the timing of Easter. Group Pace for full-service managed properties in the United States is approximately flat compared to 2024 for the last half of the year. The third quarter, which is lapping 6% year-over-year growth in 2024, has a challenging year-over-year calendar comparison due to special events like the Democratic National Convention in Chicago and the timing of Rosh Hashanah, which falls in September of this year compared to October of last year. Pace for the fourth quarter is up approximately 3%, and we should see easier comparisons due to the timing of Rosh Hashanah as well as lapping last year's elections in the United States. As we look further out, Pace in 2026 is up in the high single digits, and we are seeing positive momentum in bookings for 2026 and beyond. Although booking trends in the second quarter were softer compared to the first quarter, we're seeing an uptick in future bookings for both leisure and business transient travel. Our group and corporate customers have shared that travel continues to be a priority, especially for customer-facing meetings, and we expect U.S. RevPAR growth to improve after Labor Day. We continue to see exceptional engagement from our World of Hyatt loyalty members, a key driver and differentiator of our commercial performance. Since 2017 through the end of 2024, we have grown loyalty membership by approximately 27% per year, significantly outpacing the growth of our largest competitors. We ended the second quarter of 2025 with over 58 million members, an increase of 21% compared to the second quarter of 2024, and spending on our co-brand credit card continues to be strong. This sustained growth underscores both the benefits of our loyalty program to high-end travelers and the desirability of our network. As we expand our brand footprint in new and established markets, we are delivering more opportunities for our members to engage with Hyatt. The World of Hyatt program remains a powerful growth engine, deepening guest relationships, reducing customer acquisition costs and reinforcing our value proposition to owners and developers. Turning to growth. We achieved net rooms growth of 11.8% during the quarter, including approximately 2,600 rooms that joined the Hyatt system as a part of the Playa acquisition. The additional rooms from Playa add approximately 70 basis points to our full year 2025 outlook, which we have raised to 6.7% to 7.7%, inclusive of the Playa rooms. During the second quarter, we delivered net rooms growth, excluding acquisitions of 6.5% and had several notable openings, reflecting the strength of our brands across key segments and geographies. In Europe, we expanded our resort offerings with the opening of resorts on Greece's Aegean Coast and in Bulgaria. We also added to our Essentials portfolio, opening new UrCove Hotels in China and new select service properties in Canada. We continue to be very busy on the development front and ended the quarter with a pipeline of approximately 140,000 rooms, an 8% increase over last year. Signings increased by over 30% compared to the second quarter of 2024 and included several exciting projects such as 2 Zoëtry Resorts, 10 UrCove Hotels in Greater China and 2 Grand Hyatt Hotels in India to highlight a few. We are encouraged by the level of development interest in our brands, which we expect to translate to greater expansion of our pipeline, especially within our Essentials brand portfolio and continued organic growth over time. We expect to accelerate the growth of our Essentials portfolio with the introduction of our newest brand, Unscripted by Hyatt. This brand fills a key white space in Hyatt's portfolio, allowing us to grow in more markets and at an accelerated pace. The brand is designed to unlock growth through conversion-friendly opportunities, and this approach gives owners a flexible path to benefit from our global distribution and the World of Hyatt loyalty program. We're seeing great interest from the development community, and we expect Unscripted by Hyatt to scale rapidly through conversions and complement the recent brand additions in our Essentials portfolio, Hyatt Select and Hyatt Studios. As we look to the future, we remain confident in our strategy and our ability to deliver value across economic cycles. We believe our brand-led and agile approach enables us to respond to shifting market dynamics on a real-time basis while continuing to care for our stakeholders and create meaningful differentiation in a competitive landscape. We built a high-end portfolio of brands through deliberate and disciplined expansion in the luxury, lifestyle and all-inclusive spaces. Our luxury chain scale rooms mix has increased by 1,000 basis points since 2017, while our largest competitors have seen their luxury mix stay flat or decline. Our growth has been intentional. We have cultivated deep commercial and operational expertise while attracting and growing a high-end customer base. This has yielded meaningful differentiation for Hyatt with more than 70% of our portfolio in the luxury and upper upscale chain scales, a position that we believe is difficult to replicate and provides a competitive advantage. This sets us apart from our peers and positions Hyatt among the most recognized and respected names in global hospitality. This strategy has attracted a valuable customer base with greater disposable income who seek out quality experiences, engage deeply with our brands and demonstrate strong loyalty. The strength of that engagement is reflected through the compounding growth in our World of Hyatt program, increased co-brand credit card spending and high fees per room. Having built this foundation and transformed to an asset-light business model, we are now at an inflection point, poised to scale with efficiency and speed. As we further expand into the upscale and upper mid-scale segments, brands like Hyatt Select, Hyatt Studios, and Unscripted by Hyatt will allow us to grow with intention in markets where we have significant white space. In the U.S. alone, we are absent from more than 50% of STR tracks. And in tracks where we have a presence, our hotel count is approximately 20% the size of our largest competitors. This white space gives us robust growth opportunities, allowing us to provide existing members with more ways to stay with us while introducing new guests to Hyatt. I'm incredibly excited about Hyatt's future. We have an unmatched global portfolio of premium, luxury, lifestyle and resort brands that has driven significant loyalty membership. Our significant white space for growth is expected to increase our fee-based earnings, further improving our capital-efficient asset-light model. We believe we are positioned to generate durable, growing free cash flow and deliver significant shareholder value. I would like to close by again expressing my gratitude to all Hyatt colleagues who live our purpose every day by caring for each of our stakeholders, especially through changing market dynamics. Joan will now provide more details on our operating results. Joan, over to you.

Thanks, Mark, and good morning, everyone. RevPAR growth in the second quarter grew 1.6% compared to last year, in line with our expectations shared during our first quarter earnings call. As Mark mentioned, and similar to the trends seen in the first quarter, the Hyatt end chain scales outperformed with our luxury brands up over 5% in the second quarter. In the United States, RevPAR was flat to last year, driven by the lower chain scales and the shift of Easter from the first quarter last year to the second quarter this year. The luxury chain scale performed well, up over 4% in the quarter from strength in group business. Upper upscale hotels were negatively impacted by the timing of Easter, which led to lower group contribution in the quarter, while upscale hotels were 1% below last year due to softer business transient demand. RevPAR outside the United States performed well, and we saw continued strength in Europe and Asia Pacific, excluding Greater China. International inbound travel continues to be an important driver of results for these regions. Greater China grew RevPAR for the second consecutive quarter due to increases in leisure transient RevPAR. Demand for leisure travel remains very healthy within our all-inclusive portfolio. Net package RevPAR growth at our all-inclusive properties in the Americas and in Europe was exceptionally strong during the second quarter. Pace is up almost 5% in the Americas for the third quarter, and we're excited about the sustained demand for luxury all-inclusive travel for the remainder of the year. We reported gross fees in the quarter of $301 million, up 9.5%. Our strong fee growth was driven by international RevPAR performance, new hotel openings and growth in non-RevPAR fees. The second quarter demonstrates our ability to generate sustained fee growth in a lower RevPAR growth environment, highlighting the strength of our premium brands and industry-leading net rooms growth. Owned and leased segment adjusted EBITDA increased by 1% when adjusted for the net impact of asset sales and the Playa Hotel acquisition. Distribution segment adjusted EBITDA was flat to last year as higher pricing, effective cost management and favorable foreign currency exchange offset lower booking volumes in the 4-star and below segments served by ALG Vacations. In total, adjusted EBITDA was $303 million in the second quarter, an increase of approximately 9% after adjusting for assets sold in 2024. In the quarter, we recognized approximately $14 million of adjusted EBITDA related to the Playa acquisition for our period of ownership in the second quarter. During the quarter, we financed the Playa acquisition through a combination of cash on hand and drawing on the term loan we entered into early in the second quarter. Upon close of the real estate sale of the Playa assets, we'll use the net proceeds to repay the term loan as per the terms of the agreement. As of June 30, 2025, we had total liquidity of approximately $2.4 billion, including approximately $1.5 billion in capacity on our revolving credit facility and approximately $900 million of cash, cash equivalents and short-term investments. In the second quarter, we paid a quarterly dividend of $0.15 per share and have approximately $822 million remaining under our share repurchase authorization. We remain committed to our investment-grade profile, and our balance sheet is strong. Before I cover our full year outlook for 2025, I'd like to note that we have provided additional schedules within the earnings release and the investor deck, which include our expectations for Playa in the third and fourth quarter of this year. In these schedules and for simplicity, Playa's results post-acquisition are included for the entirety of the balance of the year with the assumption that the Playa Real Estate sale transaction does not close before the end of the year. However, based on current expectations, we anticipate the Playa real estate sale transaction could close by the middle of the fourth quarter of this year, pending antitrust approval in Mexico. I'd like to note that approximately 60% of fourth quarter adjusted EBITDA for Playa's real estate is forecasted to be earned in December. I'll now cover our full year outlook for 2025, which does not include the impact of the Playa acquisition or planned real estate transaction. The full details of our outlook can be found on Page 3 of our earnings release. We continue to monitor the dynamic macroeconomic environment, and as the second quarter progressed, consumer confidence improved. However, lower chain scales underperformed our full-service chain scales, especially in the U.S. We expect lower chain scales in the U.S. to underperform luxury and international markets in the third quarter, which is in line with the expectations that we shared during our first quarter call. Our full year 2025 RevPAR range of 1% to 3% implies RevPAR growth for the balance of the year of between flat to up 2%, and we expect the third quarter to be toward the lower end of our balance of the year range and the fourth quarter at or above the high end of our balance of the year range. For the United States, we expect RevPAR for the balance of the year to be around flat compared to last year. We expect third quarter RevPAR growth to be flat to down slightly, and we expect to return to positive RevPAR growth in the fourth quarter, led by group and business transient as we lap the presidential elections last year. For Greater China, visibility remains limited. But as we lap easier comparisons to last year, we believe RevPAR could be up in the low single digits for the balance of the year. We anticipate our properties in Asia Pacific, excluding Greater China, will have the strongest growth in RevPAR of any geographic region as they continue to benefit from significant international inbound travel. In Europe, we expect RevPAR growth to be flat for the balance of the year, with RevPAR growth contracting in the third quarter as we lap difficult comparisons, including the Olympics in Paris last summer. We expect RevPAR growth to be positive in the fourth quarter. We are maintaining our net rooms growth outlook range of 6% to 7%, which does not include rooms added from the Playa acquisition. Gross fees are expected to be in the range of $1.195 billion to $1.215 billion, a 10% increase at the midpoint of our range compared to last year. Adjusted EBITDA is expected to be in the range of $1.085 billion to $1.13 billion, a 9% increase at the midpoint of our range compared to last year when adjusting for the impact of asset sales. As a reminder, owned assets sold in 2024 accounted for $80 million worth of owned and leased segment adjusted EBITDA last year. Our full year adjusted EBITDA outlook implies balance of year growth of 6% at the midpoint of our range. We expect most of our year-over-year growth of adjusted EBITDA, excluding the impact of asset sales for the balance of the year, to occur in the fourth quarter as we lap easier comparisons, especially in the U.S., which has a more favorable calendar as well as higher one-time G&A costs last year that will not repeat this year. In the third quarter, we expect weaker demand among lower chain scales impacting select service RevPAR in the United States as well as earnings in the distribution segment. As a reminder, our owned Park Hyatt properties in Paris and Chicago benefited from the Olympics and Democratic National Convention, respectively, in 2024. Adjusted free cash flow is expected to be in the range of $450 million to $500 million, which excludes $117 million of deferred cash taxes paid in 2025 related to asset sales that took place in 2024. We are reinstating our full year outlook for capital returns to shareholders and expect to return approximately $300 million in 2025, inclusive of share repurchases and dividends. Our capital allocation priorities remain unchanged. We are committed to our investment-grade profile, identifying opportunities to invest in growth that creates shareholder value and returning excess cash to shareholders in the form of dividends and share repurchases. In closing, we are proud of our second quarter results and the strong execution around the Playa acquisition that will deliver asset-light earnings at a very attractive multiple once the sale of the real estate is completed later this year. We believe our commercial and growth strategy, the quality of our brand portfolio, and operational agility position us well to navigate this dynamic environment, and we remain committed to delivering against our long-term financial and strategic objectives. This concludes our prepared remarks, and we're now happy to answer your questions.

We'll take our first question from Conor Cunningham at Melius Research.

You've been very active over the last few months, and I appreciate the thoroughness of the slide deck and the outcomes presented for both the low and high ends. Regarding the improvement you anticipate for the rest of the year, I would like to understand it better. It appears you foresee some weakness in the third quarter. Is that mainly limited to July, with conditions improving afterward? There seem to be several comp headwinds, and it looks like the most significant variable is on the BT side. Any insights on the different factors as we progress through the year? What gives you confidence that conditions will improve by the end of the year?

Sure, Conor. I'll summarize some of my prepared remarks. Looking at the second half of the year in relation to our EBITDA guidance, we anticipate a 6% growth in EBITDA for this period. Most of this growth is expected to occur in the fourth quarter. In the third quarter, we face some challenging comparisons due to one-time events like the Olympics and the Democratic National Convention, which create headwinds for us. We are also experiencing slower group Pace growth in the third quarter, which is currently slightly negative. As mentioned earlier, our group Pace remains flat for the rest of the year, making the third quarter negative at this moment. Additionally, there's a slower recovery in our lower chain scales, which is affecting our upscale business in the U.S. and our distribution business. Moving into the fourth quarter, the comparisons will be easier due to one-time events, including holiday shifts and the presidential election in November. We're seeing better performance in the BT sector that we expect to realize after Labor Day into the fourth quarter. We're hearing from our top corporate customers that they are eager to return to travel after Labor Day. The group Pace numbers indicate that while we remain flat for the entire second half, we expect positive results in the fourth quarter. This gives us confidence, as we have better visibility for group Pace. Overall, there are several factors contributing to the differing growth expectations for the third and fourth quarters, and we feel optimistic about our projections based on current bookings and estimates for the remainder of the year.

I would just add that if you pick your head up from this year into next year, the group Pace into next year is extremely strong with a lot of it represented by rate increases. So while I think Joan explained the profile of the remainder of the year with great detail, I think maybe the more important message is that we see an improving picture heading into 2026 in addition to all the things that Joan just mentioned.

The exit rate is definitely encouraging. I would like to ask another question regarding the negotiations for the co-branded credit card. I’m trying to gain a clearer understanding of the timeline and your objectives. From an outsider's viewpoint, there’s significant growth in luxury and your loyalty members have increased by more than 400%. It appears you are in a strong position for negotiations. If you could provide any insights on this, it would be appreciated.

Conor, we will update you as soon as we have something to update. As we've mentioned, we do feel good about what we'll be able to accomplish, but we'll provide more specifics on our expected economics as soon as we're able to do that. And I would expect maybe we'll be in a position later this year or early next year.

We'll move next to Stephen Grambling at Morgan Stanley.

Just to know you've done a lot with getting the Playa real estate sale done here or on the path to being completed by the end of the year. But as we think about other hotel dispositions, maybe remind us of where you stand and how you think about capital allocation from any proceeds that could come out from that?

Sure, Stephen. Thanks for the question. The proceeds from the sale of the Playa real estate will be used entirely to pay down outstanding debt related to that. This actually meets our goal for real estate sales at $2 billion. As you’ve heard, we have a lot of activity in other assets, and we will continue to focus on further sales. This will certainly provide us with more flexibility regarding returning capital to shareholders. We expect this return of capital to continue improving each quarter as our earnings mix shifts increasingly to fee-based, and our conversion to free cash flow rises. Additionally, we have a strong balance sheet following the debt paydown from the Playa acquisition. That’s what you can anticipate over the next 18 months.

And one very quick follow-up. You talked about the improving free cash flow conversion. Maybe I missed this in your opening remarks, but how is The Big Beautiful Bill potentially going to impact your cash, taxes and how you think about cash conversion over the next couple of years?

It will have some impact. We have the benefit like everybody else does, of accelerated depreciation. And while the form of the capital that we're spending is much less about bricks and mortar and investments in hotels and more about technology, those are all qualified for accelerated depreciation as well. So I think we will realize some benefits with respect to our cash taxes as a result of that. Beyond that, I'm not sure that there's much to talk about.

No, just to reinforce the fact that free cash flow as we sell real estate and continue to sell real estate and get to our 90% expectation for asset-light earnings that will have greater and greater levels of free cash flow conversion over time.

We'll move to our next question from Shaun Kelley at Bank of America.

Mark or Joan, could you start by outlining the key elements for next year? The investment community seems to have a general understanding, but there are many variables at play. Specifically, I'd like to break it down into four parts: first, the clean Playa fees following the real estate divestment; second, the credit card agreement; third, the expected organic net unit growth; and fourth, considerations regarding owned and leased components that might require annualization. Could you provide some clarity on each of these areas to give investors a clearer view of Hyatt's earnings potential for next year? That would be very helpful.

I think we'll split this up. Joan, you can take the first 2, and I'll jump in after that.

Shaun, I'll address the first two points. Mark highlighted the expectations we published when we announced the Playa acquisition deal, indicating that the contracts we are entering into with the Tortuga buyer will generate approximately $60 million to $65 million in incremental fees. Before the acquisition, we were seeing about $15 million to $20 million in franchise fees annually. This marks the increase we anticipate for 2026 concerning Playa. Regarding the credit card, I want to reaffirm my earlier statement, which is that we will share details on the economics as soon as we can, particularly when we have a deal in place. When we officially provide guidance for 2026, we will ensure to include insights on that.

On the two other points, regarding the asset sale impacts, we have outlined the quarter-by-quarter adjustments for 2024 on Page 15 of the investor information deck released this morning. We will continue to report these adjustments quarterly to help everyone understand the year-over-year impact. The baseline as we approach next year is established, supported by strong group Pace and a positive outlook for leisure travel, particularly in the luxury segment. Although overall leisure numbers have been weaker, this is mainly due to declines in lower chain scales, which do not represent our market. Including Europe in our leisure outlook shows even better results. U.S. resorts have seen mid-single digits growth year-to-date, while all-inclusive resorts in the Americas are up almost 7%, and including Europe shows an 8% increase. This is year-to-date, and the outlook remains very strong as we head into the rest of the year. Our Hyatt Inclusive Collection hotels are performing well, as are the Playa hotels we now own. The outlook as we move toward 2026 is very positive, with significant parts of our business showing strong potential. We are on track for a great outcome this year, and the additional 70 basis points in our outlook relates to the Playa transaction. We are feeling positive, especially with the increased signings in the second quarter and some promising developments in the upper mid-scale sector. Our focus in this area will continue to provide support, and I am confident we can sustain this growth in the coming years.

Yes. And I would just add for your modeling purposes, Shaun, the confidence that Mark just described about the business and our growth, this all leads to our confidence in the fee algo holding up. So I think that helps with respect to what you're looking for, for modeling into next year.

I understand that was lengthy. Just to clarify, Joan, I won't elaborate further. Regarding the additional fees from Playa, based on your figures, you initially mentioned $55 million to $60 million. To clarify, that's the extra fees. You will also retain the fees you currently have, correct? So, that will represent the incremental increase for 2026 compared to 2025.

Yes, the incremental amount is between $60 million and $65 million.

Topline fees.

That's net of the franchise fees that we would have received from Playa.

We'll move next to Michael Bellisario at Baird.

Mark, 2-parter for you on the recent brand acquisition. I guess first on Standard and Bahia Principe, where are we in the process of integration of the various milestones that you guys worked through? What isn't bookable on Hyatt channels? How has loyalty contribution trended so far? And then that $11 million of fees that you referenced in the press release, how was that relative to your expectations? And then secondarily, for Playa, what's sort of the integration timeline there for the converted hotels and then also your expected step-up in the associated distribution earnings over time?

Thanks, Michael. Regarding Standard, we are actively engaged across the portfolio, although there might be one hotel not yet live on World of Hyatt. I believe The Manor was the last hotel to transition. As I sit here, I can't recall for certain, but it's just one hotel. The initial results are quite impressive. Amar Lalvani, who leads our lifestyle team and was instrumental in the development of W Hotels during his time at Starwood, has a clear understanding of how a top-tier loyalty program can work alongside a lifestyle brand without causing any confusion for guests. There’s a unique customer profile that will be drawn to Standard, and the early outcomes in terms of contributions have exceeded our expectations. The Standard Hotels are performing exceptionally well, and this success has persisted through our acquisition of the company. We anticipate that the presence of World of Hyatt members will significantly benefit the owners of these hotels, leading to continued growth. This will enhance the overall financial performance of these hotels while simultaneously lowering distribution costs. We are very optimistic about this situation. As for the corporate integration efforts, they will proceed throughout the year. Amar and his team have conducted a comprehensive assessment of all our lifestyle hotels and identified considerable opportunities for growth. They are managing their time effectively to complete the integration and expand all our brands. We've observed encouraging developments in our lifestyle brands, including branded residences. Concerning Bahia Principe, it is also fully managed through our joint venture, in which we hold a 50% stake. Integration in this area is ongoing, and we expedited World of Hyatt's integration into these hotels. I'm not sure if this has fully taken effect yet, as it has only been in the last few days. There hasn’t been a noticeable impact on our customer base at these hotels just yet. Nonetheless, the business performance is aligning well with our expectations. Were there any other areas you wanted to discuss, or is it just Bahia Principe and Standard?

Well, the third is just on the Playa Hotels that you're going to convert just...

Yes, thank you. There is some disruption related to the rebranding, but we expect to be fully operational by the end of the year. We are activating the channels where we have unique capabilities, including ALG Vacations. While there is disruption during any brand change, we anticipate that all of this will be resolved by January 2026.

We'll move next to Smedes Rose at Citi.

I have another question regarding your Playa acquisition. As part of that, you retained a $200 million preferred interest in the assets. Moving forward, can you provide any insight into the interest you expect to receive from that? I also assume that this is not included in the fees you've outlined for the future. Additionally, as you think about the building blocks for next year, will this represent a significant economic interest for you?

Yes. To summarize, the returns related to that preferred interest are not classified as fees, so they aren't reflected in the fee line. We're being very clear about that. Additionally, the structure of that instrument will incentivize the buyer to refinance and repay it gradually. I won't go into the specific interest rate right now, but it has built-in features that will enhance its value over time, making refinancing likely. We are very confident in the sale of this real estate because we know the market extremely well, and we are the largest manager in this asset class. Moreover, the yield potential for these assets is quite high compared to anything available in the United States, for instance. Over time, the investment community, as demonstrated by our sale, will recognize and seize this opportunity, which provides significant financial flexibility. Buyers will achieve a compelling yield, partly because that reflects the market conditions. Additionally, the free cash flow generated will grant them remarkable financial flexibility. Therefore, they are positioned for a strong rate of return, and we are poised to recover our capital.

That's right.

And 50-year management agreements for the hotels that are staying in our system.

Right. And before we move to the next question, I just wanted to clarify, Adam just clarify the point I made earlier, and this is in reference to Shaun's question. Our EBITDA expectations for 2026 for Playa are $55 million to $60 million, and that has not changed since what we previously published. So I just wanted to make sure that that was clear.

Yes. Sorry, that was $5 million lower than what I said. So that was my mess up. Sorry about that, Joan.

No. We haven't changed our expectations.

Can I switch over for a moment to discuss Hyatt Studio, which has been a significant focus of your rollout? I assume it's an important part of your net rooms growth expectations. Can you provide any updates on how that rollout is progressing?

Not really, it's more aligned with what we described last quarter. We have more hotels currently under construction and a larger number in the pipeline. Our focus is on converting these into signed contracts and then progressing to construction. The initial results in Mobile are exceptionally strong, which makes us feel optimistic. I would direct you to Pages 6 and 7 of the investor information deck we published this morning. Those pages clearly illustrate the significant opportunities we have. Our strategy revolves around enhancing the strong reputation Hyatt has built over the years as a leading high-quality brand. We've established a strong presence at the high end that exceeds our competitors in terms of our system. As we enter markets where we currently lack presence, we anticipate achieving great take rates, as the network effect encourages both new and existing guests to choose us, given our offerings in those areas. We already have a resort portfolio and luxury options that appeal to our World of Hyatt members. This is a key factor in our 27% compounded growth rate since 2017, and we are seeing a cumulative growth rate of 20% every quarter, with almost 60 million members, more than double the number SPG had when Marriott acquired Starwood. We are experiencing significant momentum in both World of Hyatt and the interest in our brands in these untapped markets. I encourage you to review Pages 6 and 7 for a clearer understanding of our position and the reasons behind our confidence in our growth moving forward.

We'll go next to Ben Chaiken at Mizuho.

You mentioned three additional assets in your prepared remarks. I believe you indicated that there is one hotel signed and two under letter of intent. If you sell more properties this year, would that enhance your expectations for shareholder returns? Also, is there any way to estimate the potential for those three hotels? I have one more question.

Yes. Our practice is to provide specifics once we close transactions. So we'll wait to do that. But the answer to your question is, first, you've heard us repeat, I don't know how many times that we're committed to an investment-grade profile. We are well on our way to doing that with the paydown of the debt once we close the Playa real estate transaction. So those transactions, assuming that they close this year, could open up additional opportunities for us. And as we look into next year, as I mentioned earlier, we do have an expectation that we will be able to lean more heavily into shareholder returns for all the reasons that we discussed earlier.

Got it. And then just one quick follow-up. Just what are you seeing in China either by chain scale or customer segmentation? Any color would be helpful.

The current atmosphere in China is characterized by caution and conservatism. The existing policies and worries about ongoing tariff disputes have created a notable level of caution, even more so than what we see in the U.S. Depending on the quarter, we've observed steady demand in business travel and, more recently, leisure travel. However, many high-end customers in China are spending more when traveling abroad, yet there's limited spending within China itself due to low inbound traffic. At this moment, caution and conservatism are key. There is an increasing belief that there might be policy changes ahead, as historically the government has been responsive to consumer sentiment. People expect some clarity regarding tariffs soon. While we can't predict a significant recovery this year and bookings have become shorter, we don't foresee major gaps looking ahead. Additionally, it's worth noting that the fees we earn from China account for about 7% of our total fee base.

We'll go next to Patrick Scholes at Truist Securities.

Now that the Playa transaction is closed and progressing as expected, is it unreasonable to consider a similar opportunity with the public hotel REITs, which appear to be trading below their net asset value? This could involve flipping the real estate and entering into similar long-term management contracts. Is it unrealistic to think that this might interest you?

Patrick, thanks for that. I'm 100% sure I can't comment on your question.

I know it's a little less...

I’m not really sure what possible explanations or responses there are. However, I can confirm that we are very focused on our organic growth and on the areas where we excel. Beyond that, I don’t have much more to add.

I wanted to ask about some investor discussions. A more standard question for Joan is whether you have mentioned expectations for the Caribbean for the rest of the year. Could you elaborate on that?

Yes. We're very encouraged with what we're seeing on the booking side in the Caribbean. I think Mark mentioned in his prepared remarks that our Pace going into the third quarter is in the 5% range. And the Playa portfolio is also performing really well. I think it's in that same mid-single-digit range.

Maybe a little lower because of the brand conversion.

Yes. The brand conversions maybe are having a little bit of an impact, but very strong bookings. So we're very encouraged by the level of activity we're seeing going into that market.

We'll move next to Richard Clarke at Bernstein.

Just some questions, I guess, on the last division you not talked about, which is the distribution. Revenues down year-on-year, maybe despite an expected Easter boost. And just the mechanics, you said you think you can make some more money in distribution post the acquisition of Playa. How does that work? Is it more volume or better returns? And just to clarify that any of that in your guidance for this year, some boost to distribution from the Playa side?

Yes, Richard, you are correct that there is indeed an opportunity to better utilize the distribution channel from the Playa hotels. From a competitive standpoint, they did not take advantage of this in their revenue management distribution strategy at those hotels. Now, the combination allows us to enhance inventory in those properties, using the expertise and capabilities of ALGV to optimize spacing and booking windows. This will be recognized in our figures by 2026 as we continue to transition into that strategic shift. This will be factored into the EBITDA numbers I mentioned earlier regarding our expectations for Playa next year, and the projected $55 million to $60 million for 2026 will include some earnings from distribution due to that strategy.

And the decline this year year-on-year in the quarter despite what we might think could be an Easter boost to that business?

Yes. We had mentioned at the first quarter earnings call that we expect to be flat based on what we're seeing, which is the continued momentum of lower chain scales in those markets, actually realizing some bookings that are a bit softer, that's going to impact distribution in the third quarter. And we still anticipate being flat to slightly down, maybe between 0% to 5% down in the distribution business for the full year. And that's because of the structural lower chain scale performance that we're seeing in that business.

We'll move next to Duane Pfennigwerth at Evercore ISI.

I have a couple of quick questions. First, regarding SG&A, your comment about an inflection point stood out to us. Is this more about aligning your current SG&A with top line growth, or is there an opportunity for efficiency? For my follow-up, could you remind us of the remaining asset sale target after Playa? How might we consider that on an annual basis?

So Duane, to address your question about SG&A, the guidance we provided for this year indicates a decline when comparing year-over-year from 2024 to 2025. We have been very disciplined with our SG&A. The growth rate in our core business has decreased. The slight increase in our year-over-year guidance is entirely attributed to acquisitions. This reflects how we are managing G&A. Additionally, you'll observe that the first half of the year accounts for a smaller portion of our full year estimates, which is simply a matter of timing in the second half regarding costs.

And then just on the remaining asset sale target after Playa, is there any way to think about that on an annual basis as we think kind of longer term?

No. Our practice has been to optimize results that is sale results and be really diligent about and thoughtful about who we're selling to. We've executed this way since 2017 at multiples far in excess of anything that's been attributed to our real estate portfolio. We have every expectation of doing that because we have clarity around what our assets are worth. So we will be disciplined in that, but we will stay leaning forward into executing. So you can expect to see a steady stream of dispositions over time. But I dare not try to guess at what the volumes of that might look like because that's beyond my pay grade.

And can you just remind us, is there a total amount remaining that you're targeting?

No. On one hand, I would say everything is available for sale, so there are no untouchable assets. On the other hand, I have mentioned before, and I will emphasize again, that I do not believe we will ever reach a point of zero. That expectation is unrealistic and not supported by any evidence in the industry. I want to express my gratitude to all of you for your time this morning. We appreciate your interest in Hyatt, and we certainly hope to see you all in our hotels so that we can perform even better and report improved results next quarter. Enjoy the rest of your day.

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