H - NYSE

Good morning, and welcome to the Hyatt Third Quarter 2025 Earnings Conference Call. [Operator Instructions] 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 Third 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 reflects 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 turn the call over to Mark.

Thank you, Adam. Good morning, everyone, and thank you for joining us today. I'd like to begin today's call by expressing my deep appreciation for our Hyatt colleagues around the world, especially those recently impacted by Hurricane Melissa. Our thoughts are with them and their families and we're hopeful for their continued safety and well-being. I want to thank the many colleagues who have stepped in to provide care and support, including financial assistance through the Hyatt Care Fund. This care and compassion from the members of the Hyatt family reflects the very best of who we are. Over the past couple of months, I've had the opportunity to visit teams across both Europe and Asia Pacific. I came away deeply inspired by how our colleagues around the world embrace our evolution to a more inside-led and brand-focused organization and continue to bring Hyatt's purpose to care for people so they can be their best to life. Turning to the quarter, I'd like to provide an update on our transactions activity, starting with the sale of the hotels acquired as a part of our acquisition of Playa Hotels & Resorts. On September 18, we sold a property in Playa del Carmen to a third-party buyer for approximately $22 million and net proceeds were used to repay a portion of the delayed draw term loan. This was 1 of 2 properties that were not subject to long-term management agreements with Tortuga Resorts. We remain on track to close the real estate transaction with Tortuga for the remaining 14 hotels by the end of the year. We also continue to make progress to sell several of our owned properties. We have 3 hotels under contract with signed purchase and sale agreements and 3 more hotels with a signed letter of intent. We expect all 6 hotels to close in the early part of 2026. We will share additional updates as these transactions progress. And we remain on track to exceed 90% asset-light earnings mix in the near term. Now turning to operating results. This morning, we reported system-wide RevPAR growth of 0.3% for the quarter, which was impacted by a holiday shift and lapping with onetime events last year. Our luxury brands continue to generate the highest RevPAR growth consistent with trends that we've seen since the beginning of the year. Leisure transient RevPAR increased 1.6% to last year and was up approximately 6% across our luxury brands. Our all-inclusive portfolio continued to deliver strong results, with net package RevPAR up 7.6% compared to the third quarter of 2024, demonstrating the strength of luxury all-inclusive travel. Business transient RevPAR was flat in the quarter, but we saw improved performance in the United States, which grew by 3% compared to last year, with select service delivering positive quarterly growth for the first time in 2025. Group RevPAR declined 4.9%, in line with our expectations, which assumed difficult year-over-year comparisons, including the Olympics in Paris and the Democratic National Convention in Chicago, and the shift of Rosh Hashanah into the third quarter of 2025 compared to the fourth quarter of 2024. Group pace for the fourth quarter is up approximately 3% as we lap easier comparisons due to the holiday timing and last year's elections in the United States. While we are still in the planning stages for 2026, we are encouraged by the forward-looking booking trends. Group pace for full-service U.S. hotels remains up in the high single digits and is expected to benefit from special events like the World Cup and America 250 celebrations. Corporate negotiated rate discussions are ongoing, and we expect average rates to increase in the low to mid-single-digit range in 2026 compared to 2025. Pace for our all-inclusive resorts in the Americas, excluding Jamaica, is up over 10% in the first quarter, reflecting the continued prioritization of leisure travel. We look forward to providing more details on our 2026 expectations during our fourth quarter earnings call. Turning to growth. We achieved net rooms growth of over 12% during the quarter or 7% when excluding acquisitions. Notable openings included the stunning Park Hyatt Kuala Lumpur located in the tallest skyscraper in Asia Pacific, along with the Park Hyatt Johannesburg. In the United States, we welcomed Hyatt Regency Times Square to our system, following an expansive multimillion dollar transformation, marking the first Hyatt Regency property in Manhattan and our 30th property in New York City. We ended the quarter with a strong development pipeline of approximately 141,000 rooms an increase of more than 4% to last year. Momentum across our Essentials Portfolio continues to build following the introduction of the Hyatt Select and Unscripted by Hyatt brands earlier this year. We signed a number of new deals for each brand during the quarter and have many more in discussions. In addition, we signed a master franchise agreement with HomeInns Hotel Group to develop Hyatt Studios across China. Further expanding our upper mid-scale brand presence in China. Under this agreement, HomeInns plans to open 50 new Hyatt Studios hotels over the coming years while building a robust pipeline to fuel future growth across China. At the end of the third quarter, upper mid-scale brands now represent 13% of our pipeline, up from 10% at the end of 2024 and more than half of Hyatt Select, Hyatt Studios and Unscripted by Hyatt opportunities are in markets where we currently have no brand representation, helping to drive organic capital-light growth and increased network effect across our global portfolio. Our strong pipeline and the momentum we are seeing in our upscale and upper mid-scale brands underscore the significant white space that we believe will support strong growth for years to come. Before I close, I want to spend a few minutes highlighting one of the most powerful strategic assets of our business, our loyalty program, World of Hyatt. During the quarter, World of Hyatt surpassed 61 million members, an increase of 20% year-over-year. World of Hyatt continues to be the fastest-growing major global hospitality loyalty program with membership having increased nearly 30% annually since 2017. Today, we have more than 40% more members per hotel compared to our closest competitor, clear proof of the deep engagement and strong preference we've earned from high-end travelers. While growth and scale matters, what truly sets World of Hyatt apart is our purpose. Our program goes beyond transactional awards to create an experience platform that delivers meaningful personal connections, whether it's through our Guest of Honor program, which allows members to gift their top-tier status to others, or the introduction of award gifting, we've redefined what loyalty looks like by making it personal. Being personal also means that our members receive the most consistent and guaranteed benefits in the industry. In addition, we reward deep engagement through our Milestone Rewards program, which delivers differentiated value even after a member achieves the highest elite status. The expanded agreement with Chase, which we announced yesterday, is a compelling proof point of how our differentiated loyalty program can deliver value to shareholders while providing rewarding experiences for members across all stay occasions. The significant increase in economics will be driven by the expanded collaboration with Chase, the continued growth of World of Hyatt membership, the strength of Hyatt's global portfolio of premium brands and Hyatt's robust pipeline. Adjusted EBITDA recognized by Hyatt related to these economics is expected to be approximately $50 million in 2025. We expect this to grow to approximately $90 million in 2026 and more than double to approximately $105 million in 2027, and we anticipate continued growth in future years. We also expect to deepen engagement with our members and continue to evaluate additional card products in the future, building on the success of our current co-branded cards. When a loyalty program is designed with care at its core, it leads to greater guest preference and helps support a powerful commercial platform that delivers more direct bookings and makes Hyatt more attractive to owners. And as we continue to grow our portfolio and expand into new segments and markets, we believe the power of World of Hyatt will continue to fuel preference and long-term value creation well into the future. As I look ahead, I'm encouraged by the momentum in our business and the performance of our brands. Our evolution to a brand-focused organization is designed to position Hyatt to be the most responsive, innovative and highest performing hotel company. and I'm incredibly excited for our future. I will close by expressing my gratitude to all Hyatt colleagues who care for each of our stakeholders every day. Joan will now provide more details on our operating results. Joan, over to you.

Thank you, Mark, and good morning, everyone. Over the past year, we've taken steps to align our above property and corporate teams in support of our brand-focused evolution, and we are confident these changes will deliver long-term benefits from multiple stakeholders. Our commercial teams have identified greater capacity to invest in initiatives that are expected to benefit our owners, including technology innovations and marketing efforts to further improve the performance of our brands. We also expect to realize lower run rate adjusted G&A costs over time. We expect adjusted G&A in 2026 will be moderately below full year 2024, despite 2 years of inflation and the addition of incremental payroll and other costs from acquisitions over the last year. As a result of these initiatives, we expect to incur approximately $50 million of restructuring charges this year the majority of which were recorded in the third quarter. Now turning to third quarter results. RevPAR grew 0.3% compared to last year, in line with our expectations shared during our second quarter earnings call. In the United States, RevPAR declined 1.6% to last year, in line with our expectations, driven by select service hotels and the timing of Rosh Hashanah. Business transient RevPAR grew low single digits in the quarter, an improvement over the decline we saw during the second quarter. Full-service hotels were negatively impacted by the holiday timing, which led to lower group contribution in the quarter, while select service hotels were below last year due to softer leisure transient demand. RevPAR outside of the United States performed well, and we saw continued strength in international markets. Europe saw positive RevPAR growth driven by strong international inbound travel despite lapping a tough comparison from onetime events last year. Greater China grew RevPAR to last year due to increases in leisure transient demand. Net package RevPAR growth at our all-inclusive properties grew 7.6% in the quarter, highlighting the continued strong demand for leisure travel. Pace for our all-inclusive hotels in the Americas excluding Jamaica, is up over 8% in the fourth quarter and for the holiday festive period is up over 11%. As Mark mentioned, the sustained demand for luxury all-inclusive travel gives us confidence as we look ahead to 2026. We reported gross fees in the quarter of $283 million, up 6.3%, excluding the impact of the Playa Hotel acquisition. Gross fee growth was driven by international RevPAR performance, new hotel openings and non-RevPAR fees. Owned and leased segment adjusted EBITDA increased by 7%, when adjusted for the net impact of asset sales and the Playa Hotel acquisition. Distribution segment adjusted EBITDA was down to last year from lower booking volumes and lapping a onetime benefit related to ALG Vacation credits from last year. The decline in travel from 4-star and below hotels led to lower booking volumes and earnings flow-through despite higher pricing and cost mitigation initiatives. In total, adjusted EBITDA was $291 million in the third quarter, in line with our expectations. During the quarter, we repurchased approximately $30 million of Class A common stock and have approximately $792 million remaining under our share repurchase authorization. During the quarter, Net proceeds from the sale of a hotel in Playa Del Carmen were used to repay a portion of the delayed draw term loan, and we expect to close the Playa Real Estate Transaction by the end of the year and we'll use the net proceeds to repay the outstanding balance on the delayed draw term loan. As of September 30, 2025, we had total liquidity of approximately $2.2 billion including $1.5 billion in capacity on our revolving credit facility. On October 30, we executed a new credit agreement that replaces the prior facility and provides for a $1.5 billion senior unsecured revolving credit facility, which will expire in 2030. We remain committed to our investment-grade profile and our balance sheet is strong. Before I cover our full year outlook for 2025, please note that we continue to include additional schedules within the earnings release related to our expectations for Playa in the fourth quarter of this year. We've lowered our fourth quarter outlook for Playa by $7 million at the midpoint of our range as a result of Hurricane Melissa, while the full year outlook remains unchanged after a strong third quarter. For modeling purposes, our outlook assumes that we will own Playa's real estate for the entirety of the fourth quarter. I'll now cover our full year outlook for 2025, which does not include the impact of the Playa acquisition or planned real estate sales transaction. The full details of our outlook can be found on Page 3 of our earnings release. We were encouraged by the performance of our hotels over the course of the third quarter. We expect full-service hotels in the United States to deliver higher growth in the fourth quarter compared to select service hotels due to easier group comparisons. We also anticipate our luxury portfolio and international markets to perform well in the fourth quarter, supported by strong demand trends and high-end consumer resilience. We've tightened our RevPAR range and expect full year 2025 RevPAR between 2% to 2.5%, which implies RevPAR growth in the fourth quarter between 0.5% and 2.5%. The quarter is off to a good start with October RevPAR increasing in the United States by approximately 1% and globally by approximately 5%. For the United States, we expect RevPAR growth for both the fourth quarter and full year 2025 of approximately 1%. We expect fourth quarter RevPAR growth outside of the United States to remain an area of strength, especially in Europe and Asia Pacific, excluding Greater China. We're increasing our net rooms growth outlook range to 6.3% 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 $1.205 billion, a 9% increase at the midpoint of our range compared to last year. We've lowered our adjusted G&A range to $440 million to $445 million reflecting the run rate cost efficiencies that we've been able to achieve throughout the year. Adjusted EBITDA for the full year is expected to be in the range of $1.09 billion to $1.11 billion, an 8% 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 growth in the fourth quarter of 9% at the midpoint of our range. Adjusted free cash flow is expected to be in the range of $475 million to $525 million, which excludes $117 million of deferred cash taxes paid in 2025 relating to asset sales that took place in 2024. In the fourth quarter, we'll receive upfront cash of $47 million as part of the amended agreement with Chase. And we are increasing our full year outlook for capital returns to shareholders and expect to return approximately $350 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, our third quarter results reflect the strength of our business model and the effectiveness of our long-term strategy. Looking ahead, we believe our talented brand-led organization, strong development pipeline and differentiated loyalty program provide meaningful advantages in today's dynamic environment. As we continue to expand into new markets and segments, we're confident in our ability to drive sustained growth, enhance profitability and deliver attractive returns to shareholders. This concludes our prepared remarks, and we're now happy to answer your questions.

[Operator Instructions] Our first question comes from Steve Pizzella from Deutsche Bank.

Just wanted to start on net rooms growth, if we could. Good to see you raise the core NUG guidance for the full year and the pipeline increased. As we start to think about next year, realizing it is still early, but with the trends you are seeing in your pipeline and the positive commentary, how are you thinking about net rooms growth going into 2026 and beyond?

Thanks, Steve. I appreciate the question. The headline here is organic growth is extremely strong. We are on track to more than double our core organic growth rate from last year to this year. Last year, we had a number of inorganic adds to our portfolio. This year, we are seeing tremendous strength in organic growth, and that's thrilling. We have real momentum in signings as we head into the fourth quarter. That's really the new brands that we launched this year, Hyatt Select and Unscripted are based on the momentum that we're seeing right now, we are expecting continued acceleration of signings through the fourth quarter. In terms of net rooms growth, we have about 38 hotels that we have planned to open in the fourth quarter, 7 of those were opened in October. Just for reference, we actually opened 34 hotels in the fourth quarter of last year, and we feel really good about completing those openings. Now I'll say what I say on this call every year, which is if some hotels end up opening in early January versus December, the growth story and the momentum is not impacted whatsoever. Even if it may impact the actual calculation at December 31. And as you all know, opening a hotel is a complex thing and an educated guess until the first guest actually spends a night. But having said all that, it really looks good at this point based on what we're seeing across the globe. The pipeline additions are also coming about 35% in Asia Pacific and 35% in the U.S. So we're seeing good strength across the board. And very, very confident about 6% to 7% growth again next year. And if I had to take up that, I would say there is more glass half full than glass half empty in that number.

Our next question comes from Smedes Rose from Citi.

I guess I just wanted to ask you a little bit about kind of what you're seeing so far in terms of group pace in the U.S. and kind of internationally for 2026, anything you can share on that.

You're going to start? I'll start and Joan can provide additional commentary. So we ended the year -- sorry, end of the quarter, third quarter with pace into '26 up in the high single digits. October was a stunning month in terms of total bookings. Full cycle bookings were up 15% in October, which is quite significant. Having said that, the bookings for 2026 specifically, were actually weaker than we expected them to be. But we have over 60% of the business on the books. In fact, it's probably closer to 65% now. And we have really, really attractive date patterns remaining in 2026 to book. So our confidence about group business coming through really strong into 2026 is very high even in spite of the fact that October itself was somewhat weaker in terms of '26 bookings. But again, full cycle across '27 -- '26, '27 and '28, very strong in general. So really seeing great progression there. And then with respect to Global Group, we've had, I think, pretty consistently strong group ex some difficult comparisons like the Olympics last year, lapping that is impossible to -- it's impossible to lap that positively. And -- so we're seeing group actually alive and well across the board. And Joan, did you have anything that you wanted to add?

The only thing I would add is you didn't mention this, Smedes, but we've obviously are encouraged by what we're seeing in Q4, which is what we had expected all year round because of the holiday shift. So we're up 3% in the production that we saw in October is strong for really short-term, high-quality corporate bookings. So we feel really confident about Q3 -- excuse me, Q4. And Mark had mentioned several years out, we're seeing increased levels of booking activity, really, really strong booking activities out, which is positive because that means associations are booking and confident in their future outlook into future years.

Yes. I mean I think in terms of the actualized business in October, group was up almost 4%. So we're seeing very, very strong group actualized business.

Our next question comes from Ben Chaiken from Mizuho.

I want to clarify the G&A comment earlier. I think you said 26%, if I heard you correctly, I believe you said 26% down moderately versus 24%, is that versus the $445 million of adjusted G&A, just so we're on the same page. And then can we touch on maybe what's driving that lower?

Sure. So Ben, we talked about some organizational changes that we made this year and also some other efficiencies that we realized along the way throughout the year. So that's why we took down our numbers, our expectations for 2025. And the reference below 2024 was for 2026. And so yes, we expect to be slightly down in 2026. We're still in the planning processes for 2026, and we'll give you the full guidance range in our Q4 earnings call. But -- what is really notable is the M&A activity and some incremental resources that we've added, we've been able to look at a 2-year period and expect to be down in 2026. So -- good results coming out of our organizational changes and outcomes for us.

Our next question comes from Richard Clarke from Bernstein.

Just a question on the $50 million uptick in capital returns. I guess you've got the -- is that coming from the extra $47 million you're getting from Chase and how you're factoring in the $50 million restructuring charge. Just how -- where is that extra $50 million come from? And I guess that's going to mean you're going to return somewhere around sort of 70% of free cash flow back to shareholders this year or adjusted free cash flow. Any reason why that percentage can't edge up next year to maybe closer to 100% of free cash flow going back to shareholders in '26?

So Richard, you have the offsets exactly, right. We factored in that bonus that we realized in the negotiation of the new card agreement. And also the offset for this year is for those restructuring charges, which is all incorporated into free cash flow. As we look ahead into next year, we are on track to move much closer to our goal of 50% conversion on free cash flow to EBITDA. So we feel really good about that. We had some onetime items impacting us in 2025, but we're on path for 2026.

Our next question comes from Stephen Grambling from Morgan Stanley.

I was hoping you could maybe outline a little bit more on the assumptions that underpin the EBITDA step-up from the co-brand credit card in '26 and '27. As we think about changes in the terms of deal versus future sign-ups of new cardholders or even increased spend in cardholders? And do you include the fees that you'll recognize from the upfront payment?

So okay, a couple of things to unpack there, Stephen. I'll start with your last question that the accounting for the upfront payment will be amortized over the life of the agreement. So that's just the accounting recognition. So just a point on that. And then yes, we are really, really pleased with the outcome of the new agreement. And the benefit is clear, as we've outlined -- actually, Mark outlined that doubling our earnings by 2027 is really strong result. And also, it is a benefit to not only HHC but also to the World of Hyatt program, which, as Mark outlined, all of the benefits that, that program provides to our members, but also to our owners. It's a win-win actually across the board with respect to all of our stakeholders. What we would say about the estimates that we put out while they're very strong, we've seen really, really incredible growth in the World of Hyatt program and also in our rooms growth. So as both of those factors increase over the coming years. We think there's upside to these numbers in the credit card fees that we will earn over time. But we've taken a very reasonable assumption related to 2026 and 2027. And we'll continue to update you as those results come in.

Our next question comes from David Katz from Jefferies.

I wanted to ask about the master agreement with Home Inns. Number one, a little more color on the economic intensity of those, presumably, it's lower because of how those structures usually are. And then secondarily, how are we thinking about it in terms of net unit growth today and what that could provide over time?

Great. Thanks, David. You know that we've been in business in a partnership with a JV with Home Inns for 5 years now. We launched UrCove by Hyatt in 2020, I believe. And the brand has been remarkably successful. It took a while to really start to gain momentum for obvious reasons given the launch timing. But the brand itself is resonating with Chinese travelers the attractiveness of the brand within the Home Inns portfolio and for Home Inns as a company is very high because it is the highest quality, highest end brand that they have in their entire portfolio. And we are also concurrently growing our World of Hyatt base, which was exactly the intention of being able to serve that next tier down, essentially an upper mid-scale brand in U.S. parlance. The locations of UrCove by Hyatt are extraordinarily attractive. They are adaptive reuse office spaces almost without exception. There are a few new builds, but many, many of them are adaptive reuse offices. In very key locations in primary cities. So the kind of customers that we're going after and being able to attract the World of Hyatt is very, very strong. Now at Hyatt Studios, the program there will be new build and primarily. We have the ability to do adaptive reuse as well, but a lot of them will be new build. And the ability to gain as much momentum for Hyatt Studios in China would not really be available to us without a partner who has basically a development and construction machine, a significant organization that is excellent at what they do. And we've seen the quality of what they've actually produced with UrCove, which gives us tremendous confidence in where we see this going. In both cases, we -- well, there are different economic structures because in one case, it's a joint venture, we earn fees directly. And on top of that, we own half of the venture. In the other case, it's fees. So we will be earning fees on the Hyatt Studios that open. They will benefit from the development of those properties and really being able to utilize an existing resource that they've got. And it helps their network as well because it gives their own over 100 million members of their loyalty program, brands to trade up into. And frankly, over time, we expect those same clientele to trade up further up into our full-service hotels. So as a network effect matter, it's very significant. We will be fee positive for Hyatt Studios and we earn fees directly and have a JV -- 50% JV interest in UrCove. So I think it's been a great partnership. It's expanding, and it's not a situation in which we're basically making $3.50 a year on something that is just for the sake of having a bunch of rooms. In terms of total impact, we're talking about 50 hotels of about 100 rooms a piece, maybe 125. So it's not going to actually have a massive impact on our net rooms growth. So we're not doing this because we can -- with smoke and mirrors, add to our net rooms growth figures. This has got real commercial impact.

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

Mark or Joan whoever wants to take it, would love just a little bit more insight on the cost program that your initiatives there, I know. I think we talked about strategically a little bit what you're doing, but just kind of what catalyzed the decision sort of the why now question, it's obviously encouraging, but it takes a lot to move a big organization. And what are some of the key building blocks or things that this can allow you to do a little bit more efficiently, maybe specifically on behalf of the owners, we sometimes hear feedback that these things can have an impact and help streamline some communication there.

Thanks, Shaun. The ultimate goal here is to move towards an insight-led and brand-focused organization. That sounds like corporate speak, but it's real in the sense that we are going deep on being able to understand the different customer groups that we serve across our portfolio, and they are different. How we get to them? That is distribution channels and marketing are different as well. So we broke our business down into 5 brand groups. And those 5 brand groups will be the way in which we actually operate the business going forward. It happens concurrently with a significant elevation of our practice of agile ways of working, which we have been working on for 4 straight years, which is designed to move more quickly, test and learn and experiment and innovate more quickly. And then the third element is artificial intelligence, expanded use of machine learning and models. We've built several agentic platforms already internally. Some have been solely focused on driving top line. Some have been really focused on cost efficiency and many -- they're all focused on driving performance, including providing a platform that our hotel teams can use to help optimize or improve, I would say, maximize performance of their hotels, which is a direct impact on owners. I just got back from Europe, during which we had an Owners Advisory Council meeting, and I went into some detail about the work that we've done on that last platform that I just mentioned. And there are direct measurable impacts that we can point to actually across all the things that we've done so far. So we have positive results. We're leaning into doing those. When we put these things together, that is the practice of agile, which is inherently cross-functional, we append all the work that we're doing with all-inclusive, and we then look at how we are in service of our brands in a different way than we were before, how we organize the company had to change. And in the course of reorganizing the company, we found tremendous levels of efficiency in how we're staffed. So a lot of that cost gain was in staffing. Some will be also in third-party costs because we are automating a significant number of functions and processes that really are able to be automated at a fraction of the cost of paying third parties to do it for you. And we've just scratched the surface. We are leaning into this very heavily, and you will see this as a tailwind for us for the years to come.

Our next question comes from Duane Pfennigwerth from Evercore ISI.

Joan, I appreciate your comments on capital allocation. Maybe you could speak to priorities in the intermediate term. Does the order maybe change? Is deleveraging more of a focus, capital return, maybe less emphasis on finding opportunities that will accelerate your growth further?

Sure, Duane. I think with respect to the leverage comment, we've have a commitment in the near term to delever, we are required with the asset sale proceeds from the Playa sale to actually pay down that delayed draw term loan, which I noted in my prepared remarks. So that is on the horizon. And we've also made a commitment to reach investment-grade leverage by the end of 2027. And we've got some asset sales that we're working on right now and some that we expect to also complete by the end of 2027. So that will improve our leverage with those asset sale proceeds. Now I'll let Mark comment on the M&A front and opportunities that we see. But with respect to returns to shareholders, we have been consistent in delivering those returns when we've had excess cash. And that will be the approach that we continue to follow going in. We'll obviously give you some insight into 2026 on our fourth quarter earnings call. But we've realized some incremental free cash flow through this -- through the credit card agreement, and that's the driver of what improved our capital returns guidance for this year for 2025. So we are taking those excess cash and doing exactly what we've committed to.

Yes. I would just point out that I think it's very important to look at history and our behaviors. You can, I think, have a higher level of confidence that we say what we do and we do what we say. Since 2013, we have consistently continued to prioritize investing -- reinvesting in our own business and returning capital to shareholders initially strictly through share repurchases and then more recently, through both dividends and share repurchases. We repurchased stock every year for the last 12 years in a row despite the fact that we've executed over $5 billion worth of acquisitions. In fact, it's probably close to $6 billion and have transformed the balance sheet in the process. So we believe that return of capital to shareholders is a key priority. We also believe that we can maintain that even as we find strategic opportunities to grow our business, in businesses in segments that are very, very profitable in which we can have a differentiated competitive position. So you can expect us to continue to do that in that way. And with the elevation of the conversion to free cash flow that, Joan talked about earlier, you can also expect that we will find more opportunities to return more capital to shareholders over time.

Our next question comes from Michael Bellisario from Baird.

Just on loyalty, can you remind us just how the room night contribution from World of Hyatt has tracked year-to-date, I think it was at 45% last year. And then just looking at how do you keep narrowing the gap to peers? And kind of what does that do for the value prop for owners and developers?

Yes. Thank you. First of all, penetration has continued to increase. We're still in the mid-40s, but there's incremental progress year-over-year. And the membership growth has continued to be extremely strong. We're compounding currently at over 20% per annum pretty much every quarter that goes by. I think the relative importance continues to grow, because the engagement level of our members, especially our lead members, is very, very high. They stay longer, spend more and are more frequent guests. So the value of our elite membership base is extremely high. And the value of the overall membership base is very high, as demonstrated by the card arrangements that we just renegotiated because we have a higher end customer base. And they are -- have higher household incomes and investment portfolios. I think in terms of the evolution, we believe that we are going to continue on an upward trajectory in terms of penetration. That's important in many dimensions. I just want to remind you that we have maybe the highest group composition in the United States, let's say, about 40% of our business is group, and group customers are not eligible for World of Hyatt point earning and therefore, they don't really count in the context of penetration. And I would say that the -- I would say that even despite that, our total direct channel delivery is in line with our peers. This is an interesting dynamic because when you look at our total delivery through group channels, which is direct, World of Hyatt, hyatt.com and Hotel Direct we are in line with our peers at a fraction of their size. So this is one area everyone talks about size and scale being the magic. Well, this is one area in which apparently being 10x our size doesn't matter. And I think part of that has to do with the compelling platform that we've created and the fact that World of Hyatt creates -- delivers on great experiences, but also great value. The final thing I will say is that we are -- we manage a bigger proportion of our total network than any of our major larger competitors. And that matters because we have very consistent delivery, very, very consistent delivery of benefits. Our elite members do not find wide variability across our hotels. Why? Because we directly control it. We're not influencing, we are actually directly controlling the delivery of benefits at the hotel level, and that matters.

Our next question comes from Brandt Montour from Barclays.

So a couple of your peers were willing to sort of give some insights or sort of early thoughts on how next year's RevPAR could shape up in the U.S. or globally. And just curious, Mark, from what you're seeing in business transient, what you're seeing in group, what you're seeing in leisure and of course, we have the World Cup. Sort of how do you -- what kind of confidence you guys have going into next year in terms of the RevPAR environment reaccelerating?

Yes. I mean, I think Joan and I will tag team this. So look, there are a number of tailwinds heading into next year between World Cup and America 250 celebrations. The infrastructure build, it continues at pace. Hyperscalers are moving from planning stage to construction phase in their data center construction. And the minimum size of investment in those projects is $5 billion. Some of them are much, much bigger than that. So there's a tremendous level of activity in terms of mobilization of resources to lean into the data requirements of AI of the future. So I think there's a lot of tailwind into economic activity in the United States, as we look forward. Part of that, I think, is anticipated and maybe driving some of the group pace that we see into next year. Joan?

I would just add on -- we are still early in the planning cycle, but the backdrop that Mark just described in the U.S. has given us confidence that we will be at or incrementally positive in the U.S. going into next year. Group is a significant factor to that because you layer in on top of those strong pace numbers and it helps improve with rate. And the demand that, as you look at this year, where we had some of maybe easier comps in the second quarter and the third quarter going into next year for the U.S. is what we would expect. Outside the U.S., we've posted very strong results this year. And what we're hearing from our teams is that we expect those results to be good, continue the momentum that we're seeing demand in international markets continues to be very strong. So while we may be lapping a little bit of tougher comps on that side, we still expect overall globally that we'll be incrementally positive in 2026.

Yes. Just one final comment, Leisure demand continues to be very strong. We've mentioned all of the various data points that in our script. But leisure just taking a real-time gauge of this. Leisure demand in the U.S. was up 3% globally up 7% in October. So this is not abating. I think there's been incessant questions about can leisure really hold up? Can you really maintain pricing levels, et cetera, et cetera. And the answer is the data continues to prove it. So I'm not sure what else -- what other proof is required we're seeing it in all of our numbers. And yes, we do serve a different customer base. So I'm not making any comments about mid-scale and below. I am making a comment about us.

Our next question comes from Patrick Scholes from Truist Securities.

Mark, 3 months ago, you had noted you were feeling cautious and conservative about China. How are you feeling today about that market?

I feel incrementally better. Part of it is, I just got back from China a couple of weeks ago. So every time I'm there, and I'm talking to my teams about what's happening and what they're seeing in the marketplace. It does give me a lot of energy, but even adjusting for that sort of near-term boost of positive 5. What I would say is a couple of things. One, some of the things that we have been known for in China continue to shine in ways that I think are notable. We just opened the first urban Alila hotel in Shanghai, and it is absolutely world-class and stunning in every dimension, not just the physical product, which is amazing, but also the guest experience. We're running materially more than 20% ahead of the brand that used to occupy that hotel, which is a super luxury brand, mono-brand. And that's in a relatively weaker market. And so I think our performance has continued to be exceptional, and I think that is driving continued openings that really are meaningful. So I toured a brand-new Andaz in Macau, over 700 rooms, more hotels going into Macau in the future. I toured the Thompson, which just opened, so it was preopening and Unbound Collection hotel adjacent to the Thompson and this is at a location adjacent to a mini central business district, which is right next to the convention center. So you might think that there's a lot of hand-waving about driving net rooms growth through lower chain scales. But for us, we're seeing strength actually in our core strength, our core strength there, which is the upper upscale and luxury brands. Our food and beverage revenues have been hit hard, I think, based on what's going on in the marketplace. The general pressure from the government remains persistent and that is causing people to be very cautious about, I would say, conspicuous consumption is the way to put it. And therefore, we have adjusted like our whole philosophy is to be agile and pivot and adapt, and we are. So banqueting is weaker, food and beverage is weaker, but rooms business is very strong for our brands in the upper upscale and luxury. And of course, we're not ignoring the upscale and upper mid-scale through the comments that I made earlier on Hyatt Studio. So I would say, in terms of operating dynamics, I think it's positive, the government has shown signs starting to pivot from a policy perspective to be more constructive to support consumer things that drive consumer purchases because it's -- consumer has grown as a proportion of their total economy. They are hyper aware of that. And finally, they are another year into the relatively slow path of resolution of the Evergrande debt overhang. And so capital markets are still not restored to pre-Evergrande levels. But a lot of the properties that I mentioned, not Alila Shanghai, which is a private developer, but many of the others are state-owned enterprises. And so a lot of our inventory is growing there. So our opening schedule, and now I'm talking more broadly about Asia Pacific is very strong, but a lot of it is Greater China. So I feel actually incrementally better. I do.

Our next question comes from Conor Cunningham from Melius Research.

If we could just talk a little bit about free cash flow conversion. I think you're targeting about 40% this year, and then you're saying that -- you reiterated the plus 50% next year. It seems like you've had a lot of incremental positives from the credit card deal. You've talked about G&A today. RevPAR reaccelerating into next year. It just seems like the plus 50% feels like a pretty easy threshold for you to get to. So if you could just talk a little bit about the free cash flow conversion, if there's anything on the working capital side of the -- or the hotel sales are limiting that a little bit. Just anything there would be helpful.

Yes, Conor, you picked up -- obviously, the credit card deal is going to be helpful into next year. And we had the onetime items impacting us this year. So we're getting back to a normalized rate in 2025, excuse me, 2026. And remember, we will also have incremental fees from Playa going into next year post the asset sale transaction. So that will be helpful and be a meaningful addition to our free cash flow conversion.

Our next question comes from Chad Beynon from Macquarie.

Mark, I wanted to ask about the impact of the government shutdown so far in the fourth quarter and then on the back of, I guess, it's fairly real time on the back of the FAA's announcement to further cut some airline traffic starting this week, how that could affect travel in the fourth quarter?

Sure. Thanks for the question. A couple of things. One, government -- direct government business in the Hyatt system is relatively small. So it's not having a material impact on our results and wouldn't. Government-related is actually positive because a lot of defense contractors and other service companies that are serving key elements of the government, I wouldn't say it's uniform, but it's -- in general, it's been positive because there is government activity that continues despite the fact of a broader shutdown. . So I think that the key at this point, it has to do with agility and hotel teams being prepared to pivot. Our hotel teams are relied upon in our world to track their revenue base, their sources of revenue looking forward and to basically insulate themselves as much as possible from things that could be potential risks and rebalance through revenue management and through tapping different distribution channels. We're making that easier for them using some AI tools that are an overlay to our revenue management system. So I have every expectation that whatever impact there actually would have been would be mitigated because they'll pivot on a continuous basis. Looking forward, I think it's naive to think that reduction in air travel won't have an impact on travel. By definition, it does. There are less people flying. And at the same time, I think what I said just a minute ago about agility and being able to pivot is really, really important. There are drive to resources that we often tap. We learned this muscle and strengthened it tremendously during the early stages of COVID. So there will be -- I'm talking specifically about leisure travel now. And so therefore, I think there will be some mitigating factors. I also would just point out that my recollection is when we had a long government shutdown some years ago, the air traffic control dynamics is actually what led to finally getting back to a reopening of the government. And so I think with reduced mobility, there might be more back pressure on lawmakers to come to the table. That's speculative, of course, but just a reference to what happened last time around when there was an extended shutdown. So yes, I think there's a potential risk here because, again, it would be naive to say no, there won't be any risk whatsoever when something like 10% of the capacity is coming out of the system. So right now, lift into some of our key markets is not based on what we can tell from our engagement with our key carriers talking specifically about Cancun, Punta Cana on the all-inclusive side. Really remain encouraged by what we're seeing, and we always have options with respect to charter, if we need extra air capacity.

Our last question comes from Meredith Jensen from HSBC.

Just circling back to what you just mentioned about the ALG business and all-inclusive. I was hoping knowing the importance of optimizing that distribution strategy from ALG. If you could speak a little bit more about this channel and what you're seeing in terms of broad B2B consumer and potentially how broadening the offering to ALG through Playa programs. I know they introduced like ALG Luxe, can continue to increase the mix of client within the ALG.

Yes, I think I might have lost you at the very end there. But generally speaking, ALGV is a critical distribution channel. I think the visibility it provides to us in terms of what the dynamics are in leisure travel are tremendous. Over 2.5 million individual customers are booking through that platform, hundreds of thousands of travel agents and advisers are linked directly into our systems. And so it is the biggest packaging platform in North America. So it really is a strategic asset in every way. I think we've -- the team has done a superb job of really maximizing the potential of that business through really being disciplined about which markets they serve and getting out of unprofitable markets, but also the pathway that I described earlier with respect to automation and the utilization of AI has also just begun there, too. So what we expect is to be able to render that business into a more and more efficient platform with much better predictive analytics embedded in it and much more higher signal-to-noise ratio and actionable insights from AI that we can actually utilize to make the booking path for travel agents and advisers that much more compelling. So what we are seeing in general is what we have said in the past, which is 4-star and below has been weaker. That's really been the key message our direct production into our own resorts is up year-over-year, has continued to rise every year since we've owned the company. And that is telling because it's both primarily 5-star, which is our portfolio. And secondly, it is an offering. Now you're right, expanded by the Playa Hotels, which is super attractive to the customer base that is booking through ALGV. And with that, I just want to thank you all for taking the time this morning to be with us. We, of course, appreciate your interest at Hyatt and really look forward to hoping -- and hoping that you will visit our hotels and resorts, and you can experience the power of Hyatt Care firsthand. So have a good rest of the day and good rest of the week. Thank you.