Hyatt Hotels Corp

NYSE:H

Earnings Call Analysis

Hyatt's Asset-Light Growth and Solid Revenue

In 2023, Hyatt made significant strides towards its asset-light business model, increasing asset-light earnings mix to 76% from 47% in 2017, with a goal to reach 85%. This transition is paying off as the company's earnings from acquisitions almost doubled the losses from asset disposals, boosting free cash flow to $602 million from $289 million six years prior. Not only has the room system grown, but Hyatt has outpaced competitors in fee revenue and loyalty program membership, delivering superior growth in average fees per room. Reflecting on the fourth quarter, Hyatt reported a net income of $26 million and a 9% earnings increase from the previous year, showcasing robust fee and RevPAR growth across various regions. Global system-wide RevPAR is projected to grow by 3-5% in 2024, with margins expected to moderately expand year over year.

Strategic Evolution and Asset-Light Model Shows Progress

The company's strategic shift to an asset-light model over the past six years has led to substantial achievements. Specifically, asset-light earnings mix improved significantly, increasing to 76% in 2023 from just 47% in 2017, with an anticipated future rate of approximately 85%. This increase is attributed to the successful reinvestment of proceeds from the sales of owned hotels into strategic asset-light acquisitions, nearly doubling their earnings contribution in 2023.

Room Growth and Fee Revenue Outpacing Competitors

The corporation's expansion has not only been about growth but strategically enhancing the portfolio quality. In this process, the company has outperformed its largest competitors, with a system-wide room increase, higher fee revenue, and a stronger pipeline. Importantly, the loyalty program's effectiveness is highlighted by having 30% more World of Hyatt members per hotel than larger competitors, signifying deeper loyalty engagement.

Free Cash Flow and Shareholder Value Acceleration

A core indicator of financial well-being, free cash flow, has more than doubled from $289 million in 2017 to $602 million in 2023. This reflects the structural changes made to the organization's composition and showcases the commitment to evolving its earnings profile, which has substantially enhanced shareholder value.

Earnings and Fee Revenues Hit Record Levels

In Q4, the company hit a new high in management, franchise, and license fees, which grew by 14% quarter-over-quarter and 22% annually compared to 2022. This is tied to the successful transition to an asset-light business model. Notable geographic performance includes a 51% year-over-year increase in fees from the Asia Pacific region, led by a substantial RevPAR growth in Greater China.

Robust Projections and Financial Outlook for 2024

The company projects a global system-wide RevPAR growth of 3% to 5% in 2024 compared to 2023. Meanwhile, expectations for adjusted EBITDA are set to range between $1.175 billion and $1.225 billion. Adjusted SG&A is anticipated to lie within $425 million to $435 million, excluding integration costs. The company has also included free cash flow predictions for the coming year, forecasting a range of $625 million to $675 million.

Commitment to Share Repurchases Reflecting Stock Undervaluation

The management expressed a strong belief in the stock's undervaluation and remains committed to continuing share repurchases, with approximately $1.1 billion remaining under share repurchase authorization. This underscores their confidence in the business's fundamentals and their willingness to back it up with capital allocation decisions.

Disposal of Assets at Value Affirming Multiples

The recent sale of a property, albeit at a multiple below historical averages for the company, was still considered successful when considering specific headwinds. Furthermore, the company has managed to retain term management or franchise contracts with each asset sold, highlighting the additional value not immediately apparent in the sale figures.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, and welcome to the Hyatt Fourth Quarter and Full Year 2023 Earnings 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 FP&A. Please go ahead.

[Adam Rohman, executive]

Thank you, and welcome to Hyatt's Fourth Quarter and Full Year 2023 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 comps today will include forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties as described on 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 differ materially from those expressed in or implied by our comments.

Forward-looking statements in the earnings release that we issued today, along with the comments on this call, are made only as of today and will not be updated as actual events unfold. In addition, you can find a reconciliation of non-GAAP financial measures referred to in today's remarks on our website at hyatt.com under the Financial Reporting section of our Investor Relations link and in this morning's earnings release. An archive of this call will be available on our website for 90 days.

Please note that unless otherwise stated, references to our occupancy, average daily rate in RevPAR reflects comparable system-wide hotels on a constant currency basis. Additionally, percentage changes disclosed during the call are on a year-over-year basis, unless otherwise noted.

With that, I will now turn the call over to Mark.

[Mark Hoplamazian, executive]

Thanks, Adam. Good morning, everyone, and thank you for joining Hyatt's Fourth Quarter and Full Year 2023 Earnings Call.

Before we begin, I want to express our appreciation for your patience and understanding regarding the delay in our full earnings release and conference call. While we released several metrics on February 14 that highlight our strong performance, I want to note, the fourth quarter marks the completion of an exceptional year highlighted by several accomplishments including the highest free cash flow in the company's history, a record pipeline and the fastest-growing loyalty program in the industry.

Now let's turn to our commercial trends. Demand for all customer segments remains very healthy. Research transient revenue increased 6% in the fourth quarter lapping a strong quarter in 2022. As we entered high season for most resort markets in the Americas, revenue for the month of December was 21% higher than the same month in 2019.

Looking at the first quarter of 2024, leisure transient pace in the Americas for resort hotels is up 1%, reflecting lower demand in Maui due to last year's wildfires. When considering the 2023 actual results increased [ 26% ] compared to 2019, we're pleased to see demand for leisure travel remains elevated, even with the headwind from Maui. Additionally, pace for our ALG all-inclusive properties in the Americas is up 11% to the first quarter of 2023.

Group [indiscernible] revenue experienced impressive growth during the fourth quarter, up 11% compared to 2022. The Hyatt sales force delivered another excellent quarter of group production booking approximately $500 million of business for all future periods for our Americas full service managed hotels, a 32% increase compared to 2022. We set a record for total group production in 2023, booking nearly $2 billion of business for all future periods, [ relocking ] very strong demand for gatherings at our hotels.

We anticipate another solid year of demand for group meetings and events with group pace for America's full-service managed properties currently up 8% compared to 2023.

Finally, business transient revenue continues to gain momentum, up 14% from the fourth quarter of 2022 and reaching 93% of 2019 levels on a global basis. As we've discussed previously, business transient has fully recovered to 2019 levels in many parts of the world, while the United States continues to improve. Looking ahead, we remain confident that business transient will continue to recover with 2024 corporate negotiated rates in the United States, up in the high single digits compared to 2023.

Turning to our loyalty program. [indiscernible] type membership grew approximately 22% compared to 2022, reaching a new high of nearly 44 million members. We also achieved record levels of spending within our co-branded credit card portfolio in 2023. World of Hyatt program benefits are clearly differentiated from any other program in the industry and most importantly, are deeply valued by our members.

While many other loyalty programs have taken steps to reduce member benefits, World of Hyatt is doing the opposite. We are redefining [indiscernible] by adding more experiences, milestones and opportunities for members to share benefits with loved ones through our expanded guest of honor benefit. During the quarter, World of Hyatt received several accolades including Best Website and Mobile App from J.D. Power and Best Loyalty Program and Best Hotel Elite Status from the Point Sky. The growth of our loyalty program, in turn, drives higher room night penetration making our brands even more attractive to owners, which allows us to grow our footprint and pipeline.

Our world-class global development team had the best year in our history, signing the most rooms ever in a single year. Our record pipeline of 127,000 rooms grew 9% compared to 2022 and represents approximately 40% of our existing rooms. The momentum around [ Hyatt Studios ] are new upper mid-scale extended stay brand has significantly exceeded our expectations. We have approximately 200 deals in various stages of negotiation, including 17 fully executed franchise agreements as of the year-end 2023. The first [ Hyatt Studios ] Hotel broke ground in November and is expected to open in early 2025.

We also announced the strategic cooperation agreement with the Hangzhou Trade and Tourism Group and Dragon Group, to develop more than 60 hotels in China over the coming years under our select service and independent collection brands. We added nearly 10,000 rooms to our portfolio during the fourth quarter including the 2,500 room Rio Hotel and Casino in Las Vegas, which is undergoing a transformative renovation and we expect it will contribute significant franchise fees.

Our inclusive collection portfolio also continues to attract new owners who benefit from our [indiscernible] and commercial delivery capabilities. For example, we converted 2 hotels with nearly 2,000 rooms in total in the Dominican Republic [indiscernible] fourth quarter, further expanding our [ high-clusive ] collection portfolio in the Americas. In China, we entered into a strategic alliance with Mumian Hotels that includes 6 hotels joining our brand portfolio in the fourth quarter.

We continue to focus our attention that creates greater network effect by providing our guests and customers with offerings in new markets and across more price points. This drives our loyalty membership and is compelling for prospective hotel developers and owners as we continue to lower our overall distribution costs. This benefits our shareholders because of our commitment to increasing fees per room and not just increasing our room count as this is the key driver of high-quality earnings.

We have several updates to share on asset sales. But first, I would like to start with the Unlimited Vacation Club transaction that was included in the earnings release posted this morning. On February 14, we completed the transaction to sell 80% of our Unlimited Vacation Club business to an investor unaffiliated with Hyatt for $80 million. We've been working on this transaction for more than 6 months and we are very pleased to continue to manage UVC under a long-term management agreement. This will ensure a seamless transition for colleagues, UVC members and hotel owners.

Going forward, we will receive management and royalty fees in relation to the exclusive arrangement between Hyatt inclusive collection brands and UVC. We expect management and royalty fees to exceed $60 million for the remainder of 2024. We are very pleased with the outcome of this transaction as our new joint venture partner shares our commitment to the growth of UVC. Additionally, the transaction simplifies our external reporting and generates what we expect will be a growing level of fees going forward.

Turning to asset sales. We closed the sale of Hyatt Regency Aruba on February 9 for gross proceeds of $240 million, while retaining a long-term management agreement. In connection with the transaction, we provided $41 million of seller financing. As of today, we realized $961 million of gross proceeds from the net disposition of [indiscernible] Estate inclusive of Hyatt Regency Aruba at a total blended multiple of 13x. We've made meaningful progress towards our $2 billion disposition commitment and have 5 asset sales to update you on.

We signed definitive purchase and sale agreements for 2 assets that aggregate to approximately $310 million of expected gross proceeds. We expect to close both transactions by the middle of the year.

We expect to select a buyer in the coming weeks for the asset that we noted was being marketed for sale during our last earnings call. And finally, we are also engaged in off-market discussions for the sale of 2 other assets. We expect to generate total proceeds that exceed $2 billion before the end of this year if we complete each of [indiscernible] asset sales combined with the already realized $961 million of gross proceeds. We are confident we will achieve our disposition commitment at attractive valuations and while securing durable long-term amendment and franchise agreements.

In closing, beyond achieving another year of record results, I would like to highlight the consistent and successful execution of our strategy since we began our asset-light evolution 6 years ago. We have made irrefutable progress toward our strategic vision and earnings evolution, underscored by 3 important [indiscernible] points. First, our asset-light earnings mix increased to 76% for the full year in 2023 from 47% in 2017. We are on path to reaching a run rate of approximately 85%. Over the past 6 years, we've realized significant proceeds from the sale of our owned hotels and reinvested these proceeds in strategic asset-light acquisitions. The earnings contribution in 2023 from our acquisitions was nearly double earnings loss from our asset dispositions while also reducing the run rate of our capital expenditures.

Second, we are outpacing the industry in a meaningful way, growing our system-wide rooms, fee revenue, pipeline and loyalty program membership at faster rates than our largest hotel competitors. We've reached much greater size but not just for the sake of size. By growing with intent, we've enhanced the quality of our portfolio, expanded our brand presence in many new markets and increased our average fees per room. The number of World of Hyatt loyalty members per hotel is 30% higher than our larger hotel competitors because we have deepened the loyalty amongst our existing members while also attracting new members. While net rooms growth may grab headlines, leading the industry in growth for 7 straight years, while growing fees per room is what differentiates Hyatt and creates value for shareholders. We don't need to be the biggest in the industry to be the best because we have, and we will continue to play the game differently.

Third, free cash flow has more than doubled from $289 million in 2017 to $602 million in 2023 because we are a fundamentally different company. We've delivered on the commitment that we made 6 years ago to evolve our earnings profile and [ unlock ] value for shareholders. Our capital allocation framework has led to exceptional returns on our investments while maintaining our investment-grade profile and returning $2.5 billion of capital to shareholders.

We are progressing ahead of time line that we laid out during our Investor Day last year, and I'm excited about the year ahead. The combination of greater asset-light earnings, growth across multiple dimensions and significantly higher free cash flow is proof that our earnings evolution has been nothing short of remarkable. All stakeholders benefit from a much larger Hyatt that generated greater asset-light earnings and free cash flow.

To all members of the Hyatt family, I want to extend my gratitude for your remarkable.

[Audio Gap]

To be a member of the Hyatt family guided by our purpose to care for people so they can be their best.

Joan will now provide more details on our operating results. Joan, over to you.

[Joan Bottarini, executive]

Thanks, Mark. For the fourth quarter, Hyatt reported net income of $26 million and diluted earnings per share of $0.25. Adjusted EBITDA was $241 million, and net deferrals plus net finance contracts totaled $33 million. Excluding the impact of travel credits recorded in 2022, earnings were up 9% this quarter.

We achieved a record level of total management franchise license and other fees, up 14% in the quarter compared to the fourth quarter of 2022 and up an impressive 22% for the full year compared to 2022. This record-breaking performance is a direct result of the continued success of our asset-light transformation.

Our legacy Hyatt management and franchise business once again had another strong quarter of growth, we had adjusted EBITDA of $220 million and significant overall growth in fees, up 39% compared to 2019 in constant currency, highlighting the recovery in travel demand. Compared to the fourth quarter of 2022, legacy Hyatt base fees and incentive fees both increased by 13%. Additionally, legacy Hyatt franchise fees this quarter increased by 17% compared to 2022.

Our growth across all fee revenue streams reinforces the breadth and depth of our successful growth strategy and the quality of our asset-light earnings.

Results around the world is strong led by the Asia Pacific region contributed $48 million in fees, up 51% year-over-year. Greater China RevPAR was up 84% from last year and up 10% from 2019.

In the Americas region, fees increased 6% with RevPAR in the United States, growing 3% in the quarter, driven by strong group rate.

Fees in the EAME region declined 3% compared to 2022 due to difficult comparisons in the Middle East from the '22 FIFA World Cup in Doha.

RevPAR in Europe increased 9% due to the strength of group and business transient demand.

Moving to our owned and leased segment. Adjusted for the net impact of transactions, adjusted EBITDA in the fourth quarter was up 3% compared to the fourth quarter of 2022 and increased 15% compared to the fourth quarter of 2019. Improved group revenue and sustained transient demand contributed to 5.9% RevPAR growth over the fourth quarter of 2022. Owned and leased margins in the fourth quarter remained at elevated levels to 2019, up 240 basis points due to a combination of higher rate growth and productivity gains. For the full year, these margins expanded by 310 basis points compared to 2019, exceeding the high end of our previously disclosed expectations.

Looking ahead to 2024, we expect comparable owned and leased margins will deliver moderate expansion over 2023 for the full year, allowing us to maintain a higher run rate margin compared to pre-pandemic levels.

Turning to ALG. Adjusted EBITDA was $21 million and net deferrals plus net finance contracts totaled $33 million in the fourth quarter. ALG segment adjusted EBITDA results increased 33% compared to the fourth quarter of 2022 when adjusted for onetime travel credits totaling $23 million in the fourth quarter of 2022 that did not repeat in 2023 and a $5 million impact due to a stronger Mexican peso. Comparable net package RevPAR for ALG properties increased 9.2% in the fourth quarter and increased 13.6% for the full year of 2023 compared to the same periods in 2022.

The fourth quarter benefited from improved results in Cancun with comparable net package RevPAR increasing approximately 10% compared to the same period in 2022. ALG continued to deliver exceptional results during the second full year post acquisition, resulting in an effective [indiscernible] multiple of 7.5x.

Before I move on to our liquidity and outlook, I want to share the reason behind the delay of our earnings release and conference call. We simply needed additional time to complete our year-end procedures around UVC deferred costs and net deferrals. Those procedures are now complete, and we expect to file our 10-K this afternoon. Our year-end procedures were unrelated to the UVC transaction that Mark mentioned earlier.

Now moving to liquidity. As of December 31, 2023, our total liquidity remains strong at $2.4 billion including approximately $1.5 billion in borrowing capacity on our revolving credit facility. At the end of the quarter, we reported approximately $3 billion of debt outstanding.

For the full year of 2023, we returned approximately $500 million to shareholders inclusive of dividends and share repurchases. From January 1 through February 15, we've repurchased shares of Class A common stock for approximately [ $30 million ]. As of February 15, we had approximately $1.1 billion remaining under share repurchase authorization. We remain committed to our investment-grade profile and our balance sheet is strong.

Before turning to our outlook, I'd like to call attention to the announcement this morning regarding our reportable segment realignment changes, detailed on Page 4 of our earnings release. As a result of this realignment, we will have 3 reportable segments: management and franchising, owned and leased and distribution, starting our first quarter 2024 results in May. As part of the UVC transaction mentioned earlier, we will recognize UVC management and royalty fees in our management and franchising segment, and we will no longer report net deferrals or net finance contracts.

In connection with the realignment, we will now report the results of Mr. & Mrs. Smith in the Distribution segment and commission fees and SG&A will now be reported within distribution revenues and distribution expenses. We intend to publish historical financial information that reflects our new segment structure, along with a revised growth model before our first quarter earnings call. We will also host a public webcast to address any questions that you may have.

Now I'd like to discuss our full year 2024 outlook. The full details can be found on Page 4 of our earnings release. And I would also like to schedule [ A22 ] in our earnings release, which provides a bridge from 2023 full year reported actual results to illustrative 2023 results that adjusts for the sale of Hyatt Regency Aruba, the UVC traction and the change to Mr. & Mrs. Smith revenue and expenses that I just mentioned. We believe this schedule simplifies comparisons between our 2024 outlook and 2023 historical results.

We expect full year global system-wide RevPAR growth between 3% and 5% compared to 2023, informed by our visibility into group bookings and our confidence that business transient will continue to recover while leisure transient demand levels sustain. We anticipate higher RevPAR growth from international markets, notably Greater China, with the U.S. near the lower end of our global outlook range. [indiscernible] rooms growth between 5.5% and 6%, and we are confident that we will see another healthy year of portfolio growth, driven by both organic growth and conversions.

We have added management franchise license and other fees to our 2024 outlook, which are expected in the range of $1.1 billion to $1.13 billion. Adjusted SG&A is expected to be in the range of $425 million to $435 million, excluding integration costs. Adjusted EBITDA is expected to be in the range of $1.175 billion to $1.225 billion. When considering the illustrative 2023 historical results outlined on Schedule A22, our growth model is intact for all elements of our business, except for ALG vacations, as we are lapping a record first quarter due to unusually high demand in 2023. We expect ALG vacation profits to decline approximately $20 million compared to 2023 on the first quarter and this has been incorporated into our full year outlook.

For the full year 2024, we expect free cash flow in the range of $625 million to $675 million and capital returns to shareholders, including share repurchases and dividends between $550 million to $600 million.

The 5 asset sales that Mark mentioned are not contemplated in our full year outlook, and we will update our outlook as additional asset sale transactions close.

I'll conclude my prepared remarks by saying we're very pleased with our fourth quarter results, which we believe demonstrates our unique positioning and differentiated model. Our teams have delivered exceptional results this past year and we're all looking forward to [indiscernible] as we continue executing our strategic vision.

Thank you. And with that, I'll turn it back to operator for Q&A.

[Operator]

[Operator Instructions] Our first question comes from Richard Clarke from Bernstein

[Richard Clarke, analyst]

Just want to start on the UVC disposal. Just wondering whether you could tell us how much free cash flow UVC generated in 2023? And how much it's expected to generate under the new structure? And then maybe how that kind of gets us to the $100 million valuation? I guess on EBITDA looks like it's only 2.5x EBITDA. So why you are happy with that valuation of UVC?

[Mark Hoplamazian, executive]

Thank you, Richard. First of all, I think the key elements of the transaction begin with our and the structure of the JV, we have a JV partner and we who are both focused on and committed to and benefit from the growth in the UVC program. And so we have a great deal of alignment with our new partner. Secondly, we have received upfront proceeds, as you noted. Third, there's an ongoing fee stream driven by net contract -- net cash contract revenue both management fees and royalty fees, which by way of reminder, in our Investor Day, we laid out the extraordinarily high correlation. It's over 95% correlation between the growth in them and net rooms growth for our HIC hotels, our own inclusive hotels. And we've been growing and expect to continue to grow in the low double digits per annum. And so that gives you a sense for, I think, our outlook for how the fee stream might grow over time. Finally, it simplifies our reporting with increased clarity and focus on fees, cash fees actually received by Hyatt.

In terms of cash flow, generally speaking, the elements of the UVC business include 3 key drivers. One is adjusted EBITDA, which tends to be either modest or negative. The deferred -- net deferrals and net finance contracts. The net [indiscernible] contract reflects changes in net finance contracts, which is not cash, and the net deferrals represent cash. So if you go back and take a look at Schedule A2 or A3, I can't remember, I think it's A2 on the earnings release, you'll be able to decipher that for yourself in 2023.

Was there a second part of your question that I missed?

[Richard Clarke, analyst]

No. I guess the only other part how -- on the basis of that, $80 million for [indiscernible] $100 million [indiscernible] being the right value of this business.

[Mark Hoplamazian, executive]

Yes. So I think the simplest way for me to help you is -- we did receive upfront proceeds. In addition to that, we have an ongoing fee stream. I noted what our expectation for the remainder of the year this year. And these are fees that are all cash and are in like fashion [indiscernible] as a company. And I don't know what the current if we look at those -- the sell-side analysts who cover Hyatt and apply the multiples that they have applied in the past our fees. I think you end up somewhere in the mid-teens range. You can do the math yourself in terms of how we thought about the value received or retained through the transaction.

[Richard Clarke, analyst]

Okay. And maybe if I can just ask a quick follow-up. The partner you're working with, is UVC getting merged into a bigger loyalty program or an entity in this that Hyatt will somehow benefit from? Or is UVC basically saying exactly the same, but now just kind of sitting off your books?

[Mark Hoplamazian, executive]

It's the latter.

[Operator]

Our next question comes from Joe Greff from JPMorgan.

[Joseph Greff, analyst]

Mark, I think I can piece it together, but I'm not sure if you actually said it as explicitly is how I'm going to ask it. But can you talk about the motivation and the strategic rationale for selling a majority interest in UVC? I mean I see the subsequent benefits from it that you talked about. And obviously, we agree and the market agrees today, obviously. But that would be helpful to kind of just hear that from you.

[Mark Hoplamazian, executive]

Yes, I think first and foremost, we -- thank you for the question, Joe. We wanted to -- we have tried tremendously and I think achieved a lot in helping to explain the mechanics of the business and how you can think about the value of the business.

I think what's missed in the conversation constantly is the integration and the vertical integration of model versus how their companies are operating all-inclusive resorts or resorts period. It is an integrated model, and that's why a long-term management arrangement where we continue to manage the platform and where it's exclusive to our all-inclusive brands are key elements of the structure of the deal.

With that, being able to secure that and being able to render the actual cash generated for Hyatt every year in a very simplified way through fees, we believe, has the benefit of simplifying this tremendously and really eliminating any potential confusions. No matter how much progress, I think we made with a lot of people and understanding it, they really remained some measure of confusion and, frankly, extra work, and we're trying to simplify your life too as well as our shareholders' lives.

And I think finally, we created a deal where our partner and we are 100% aligned on the growth of the program. We have great visibility to what that growth is likely to be because we have a pipeline, which has a several year run rate associated with it. So -- and we showed there's a great chart in the Investor Day deck that shows the correlation between new members and new rooms added to the HIC portfolio. And so we think we're set up for success going forward with a simplified structure with continued control over the management and vertical integration in relation to the business. So those are all compelling reasons.

[Joseph Greff, analyst]

Great. And -- and moving on to asset dispositions. You laid out these additional assets that could net you have another $750 million gross proceeds. How at this point are you thinking about the use of those proceeds and whether that's just -- it allows you to do more capital return? Or are there things out there that are more fee generative and brand related that you can purchase?

[Mark Hoplamazian, executive]

Yes. I think, Joe, we're continuing to pursue many different flavors of expansion. Our ability to convert properties and even groups of properties this past year was at an all-time high for us, represented over 50% of our total gross room openings in the year. And it was across our brand portfolio. Interestingly, our destination by Hyatt brand represent [indiscernible] the Rio, the JdV brand represented in the Mumian deal. And so our collection brands are continuing to attract and garner a lot of attention.

I would also add that [indiscernible] brand [indiscernible] occurred over the course of the year. And so looking at and experiencing an increase in opportunities that don't look like traditional acquisitions. They look like portfolio transactions in which we are affiliating either through management or franchising a group of hotels and so we will make investments in some of those, but they will not look like very large ticket, big scale acquisitions of large platforms that will look like relatively smaller investments in either smaller brands or management platforms or other kinds of capital deployment to secure and facilitate some of these portfolio transactions in many cases, they require capital expenditures in order to bring them up to Hyatt standards. And that's typically where the application of capital is applied.

Therefore, we find it inconceivable that if we do execute against all of the dispositions that we talked about that we would not increase our return of capital through share repurchases, especially given how undervalued the company has been for an extended period of time.

[Operator]

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

[Shaun Kelley, analyst]

I just wanted to, yes, say from the accounting perspective, at least, thank you for finding the solution for UVC. I do think simplifies everybody's lives a little bit. So my first question would be then kind of go back to some of the Analyst Day targets a little bit, Mark. And if we just look at a couple of the KPIs you gave both your RevPAR outlook and your net unit growth outlook, they're both a little below the ranges provided back then. And probably the investor group is a little bit more focused on the rooms growth side, but maybe call out what the differentials are or what could move you back to within the ranges you provided back then just so we can get a sense of what's changed at the margin?

[Joan Bottarini, executive]

I'm sure, Sean. I'll start with the RevPAR target, and maybe Mark will comment on the net rooms growth.

At Investor Day, when we had provided the 3% to 7%, our current expectation of time for 2023 was 12% to 16% for 2023. We ended up in 2023 at 17%. So that was a full 300 basis points above the midpoint of our range. So the acceleration that we saw over the course of last year certainly factors into our 2024 outlook. Now visibility that we have now, we mentioned the pace going into 2024, which is healthy for group. We also mentioned that the shorter-term visibility into leisure is also very strong and encouraging into our resorts. Mark mentioned the one exception we have with Maui, which is short term. So we feel like the 3% to 5% is a very solid outlook for this year, and there's -- there could be some room to improve, and we'll update you as the year progresses.

[Mark Hoplamazian, executive]

And on the net rooms growth side, as I mentioned, in '23, we had a very outsized amount of conversions. We do think that 2024 will include an elevated level of conversions, not at the level that we experienced in 2023. We are -- our outlook really represents things that we have some visibility to as opposed to a plug number with respect to a guess. If '24 unfolds the way that we experienced the marketplace in '23, any incremental both portfolio deals and/or conversions would be incremental to our current outlook. And so -- I guess what I would tell you is we are trying to stick to things that we have high confidence in, in providing our outlook. But if you ask my overlay on my judgment, I would say the marketplace feels the same, and I think we'll likely see the same at least for the first half of the year, and we do have a number of things that we are working on that could actually pan out into incremental rooms growth.

So I guess what I would say, it's a matter of confidence interval rather than a belief in -- sorry, confidence interval in visibility as opposed to a change in our fundamental belief about what our run rate growth rate will be going forward. And this is at a time when our new starts remain much lower than they were prior to the time that -- well, pre-pandemic, I guess, in prior to the time that interest rates increased.

You're seeing, I think, very lid upper upscale and luxury starts or construction underway. You're seeing also limited -- more limited start construction starts in upscale and upper mid-scale. The one caveat to that and the one counterbalance to that is the [ CMBS ] market is alive and well. Availability is high, spreads are narrow and so we're seeing CMBS deals get done both large single-asset deals, but also portfolios. So that's really one thing that's sort of bridging us to a point where the banks actually start to get back involved.

The only place that these banks actively involved right now has to do with relatively smaller deals or Hyatt Studios developments. Those developers are leaning on community and local bank and sometimes small regional bank relationships in order to get deals financed. So we think that, that access to capital, that form of access to capital and the quality of our developers for Hyatt Studios will allow us to see more and more Hyatt Studio starts relative to upscale or upper upscale.

[Operator]

Our next question comes from Dan Politzer from Wells Fargo.

[Daniel Politzer, analyst]

I wanted to touch on the asset sales a little bit. On the slide that you need to get done, should we expect further seller financing? And maybe could you talk about the puts and takes of the interest rate environment [indiscernible]?

[Mark Hoplamazian, executive]

Sure. First of all, I just want to briefly state that we have very long experience in providing seller financing, dates back in my tenure to 2008 when we provided senior financing for the recapitalization and sale of the Hyatt Regency Waikiki, which turned out to be a fantastic outcome because we save that property as part of our chain but also secured a very long-term management agreement. Got repaid in full. I went to sleep every night knowing that I would be thrilled not just okay with, but thrilled to own the property at the loan to value at which we had made that loan.

And that's really the way we think about seller financing. We are structuring our -- any seller financings that we've done to be at a loan-to-value level that we are 100% prepared to own the whole property and would be happy to do so if it ever came to that.

And with respect to the environment, there's no question that capital availability is an issue. And so we have, obviously, in this case, and we will likely find ourselves in a situation in which we are providing additional seller financing as we move through this year.

What is also true is if you go back and study deals, not -- there are not that many deals in asset -- single asset transactions that have occurred in truly distressed environments. But those that were able to get done or at a time when capital availability was low, not necessarily distressed operating-wise, but maybe in the capital markets. They've all proven to be fantastic investments. We have some personal experience with us at Hyatt, but also if you look across the industry, those deals tend to have great results.

And yes, interest rates are cyclical. Of course, we can't -- we can't tell what the interest rate cuts will yield in terms of where in the cycle we happen to be. But we do expect refinancings to be very attractive well before maturity dates for the kinds of financings that we're providing. So we don't expect to have this capital out for very long. And I think it just provides the right kind of bridge, if you will.

The other thing is it's a small portion of the capital stack. We're not advancing 60% of the purchase price or anything like that, they tend to be a small proportion maybe in the teens or 20% of the total purchase price.

[Daniel Politzer, analyst]

Got it. And just for my follow-up, I want to make sure I kind of understand the UVC pieces just to be clear, right? So you're going to -- I mean the $60 million in fees that you talked about getting for 2024. That will come in the form of EBITDA, and that would be a fee stream, right? And then it's basically just the [indiscernible] more or less of deferrals that you had in 2023 or [indiscernible], we're not going to see those. Is that -- is that kind of the easiest way to think about it?

[Joan Bottarini, executive]

Dan, I would -- in my prepared remarks, I referenced a table and a schedule in our earnings release. It's A22. It's super helpful to reference that schedule as a baseline for 2023 because what we've done there is we illustrated the transaction, both UVC and Aruba and then also this reclass that we undertook for Mr. & Mrs. Smith. So that baseline there that is reported in our earnings release this morning is a great reference to understand the line items that are impacted by those 3 things.

[Operator]

Our next question comes from Patrick Scholes from Truist Securities.

[Charles Scholes, analyst]

Mark, Joan, regarding the Aruba sale, [indiscernible] 2023 EBITDA sort of a fair comparison to think about what a multiple would be anything unusual in that? And then any large requirements for CapEx on that property also help us to think about sort of the -- all-in multiple asset sale?

[Mark Hoplamazian, executive]

Yes. So first thing I'm going to do is do with Joan just did, we just refer you to A22. And in that schedule, there are expensive footnotes from which you will be able to pretty clearly see what the property level earnings were in 2023 because we have created a pro forma -- illustrative pro forma for -- in that schedule. Yes, it is -- the property sold at a multiple significantly below where have been selling properties. There are 2 key factors. The first is it's a leasehold, not a freehold. And the second is that there are some local market factors that we have -- we and the buyer have very high visibility to that will create a headwind with respect to earnings prospectively that will apply a couple of years from now. And that is fully accounted for in the valuation. Taking those factors into account, we're thrilled with the outcome of this transaction and feel like it was a very good value.

The final thing I'll say is I made a comment probably 1.5 years ago that the thing that a lot of people were focusing on was the elevation of cap rates. And what I explained at that time was the other thing that's going up that people don't add to that sound bite is earnings. So cap rates rise and earnings rise, the total proceeds that one receives upon disposition stay the same or increase depending on the growth rate of earnings.

So if you ask me, going all the way back to 2017 or even prior to that, how we have been looking at the valuation of Aruba, we've received proceeds equivalent to what we thought the asset was worth. And that's the result of much higher earnings at a lower multiple but in terms of cash value to the company, we've absolutely achieved what we believe is a very fair value for the asset.

[Joan Bottarini, executive]

One of the things we've consistently disclosed to, Patrick, is that when we have disclosed the multiples, it does not include the fee-based, the long-term fee base that we retain as a result of all of these sales. So that is in addition to the asset sale itself, is the retention of those contracts. And in every single asset that we've sold, we have retained term management or franchise contracts.

[Mark Hoplamazian, executive]

And those have significant run rate value.

[Charles Scholes, analyst]

And then a follow-up question. Mark, I apologize, perhaps you mentioned this in the prepared remarks. Last quarter, you gave some statistics on booking pace for the ALG resorts. I'm wondering if you can give us some fresh color on how bookings looks for 2Q? And then any initial indications on that leisure travel for the summer?

[Mark Hoplamazian, executive]

Yes. So I think we mentioned that the pace for ALG properties in the first quarter is up [ 11 ] and the second quarter is developing well. I will be reluctant to give you a number at this point. It's a little early because the base is still building at this point. But definitely positive. Where exactly we end up, I can't say at this point, but I'm encouraged by what I've seen so far.

A couple of things that I would just provide as context. The first is there's significantly more lift into Cancun this year than there was last year. And secondly, airfares are down. So the total package costs are maintaining, there's just a relatively higher proportion of that, that's going to hotels than it is to airlines, let's say. So that's by virtue of airlines really trying to maintain market share into one of the hottest destinations for leisure travel.

And -- so -- and by the way, they're down from levels last year that were unusually high. They were -- there was a bubble, I would say. One reference point that we looked up and had referenced to in the third quarter of last year was the rates on average from Houston to Cancun went from just under $400 to over $750 and that's now readjusted back to a more normalized level.

So the extra -- the extra lift is positive. It is still true, though, that we are lapping a very unusual demand period last year in the first quarter, and that's why we've got this $20 million headwind that Joan referenced in ALG vacations.

[Operator]

Our next question comes from Duane Pfennigwerth from Evercore ISI.

[Duane Pfennigwerth, analyst]

I could ask you more UVC accounting questions, but we'll take that offline. Just on this journey to simplification which, I guess, the sale of UVC fits. What are the other 1, 2, 3 initiatives that you're working on to further simplify your financial reporting?

[Joan Bottarini, executive]

Sure. So Duane, yes, simplification is absolutely what we believe we will be demonstrating here in 2024. A couple of things. So you mentioned UVC and the capture of those economics now in fees, no more disclosures around net deferrals and net finance contracts. We've also realigned our segments, which I went through in some detail in my prepared remarks, and there is also more detail in our release this morning. And importantly, that realignment is really how strategically we're looking at the business. We have a much greater fee-based results, and that's demonstrated by our mix that we disclosed this morning of 76%. And so now we'll have the managed and franchise business in one segment, and we're also providing an outlook for our managed and franchised fee growth into 2024.

So adding all of those elements up really simplifying the results this year and the outlook this year and the ability to model Hyatt. We mentioned now the schedule A22, I think it's -- will be super helpful to model this year. And I'll just add on, when you compare that to the midpoint that we've provided in our outlook, that we are still following our growth model for fees, net rooms growth, our owned performance. The only exception this year will be the vacations business and that headwind that we described.

So when you apply the growth model to the baseline that we've provided on A22, you'll see that we're growing core growth on our adjusted EBITDA by 11% this year.

We will be -- as I mentioned, we will be sharing with you the segment realignment prior to the first quarter earnings release, and we will include a few simplifications to the growth model as well as you can now look at the different segments with a different view of clarity. So we're excited for that and look forward to seeing that release when we actually have that call with all of you.

[Duane Pfennigwerth, analyst]

Okay. And then just for my follow-up, you did provide some good pipeline deal in the release. Can you expand on ALG specifically -- ALG versus new build? And any comment on the typical time frame from signing to opening with ALG resorts versus a kind of conversion?

[Mark Hoplamazian, executive]

Sure. We -- with these openings that I mentioned in the fourth quarter, the actual total net rooms growth for ALG is running something like in the high teens at the moment. But that does include some conversions that I mentioned, the 2,000 rooms into the [indiscernible]. The core pipeline is all new build. We are working on additional deals like we experienced in the Dominican Republic, both in Europe and in the Americas. So I would -- we have said in the past, and I would continue to maintain that I think the core growth for the ALG portfolio will likely be in the 10% range, plus or minus a small amount. But generally speaking, I think that's a fair way to think about it.

And there are -- it's punctuated by episodic portfolios and other conversions. I didn't expect -- when we bought ALG, I did not expect that we would see so much conversion activity as a possibility, but we are now starting to see that for various reasons that I've covered in prior earnings calls, but we remain encouraged about that.

[Operator]

Our last question today will come from Michael Bellisario from Baird.

[Michael Bellisario, analyst]

Two more ALG questions for you. First, now that you've sold UVC, is there any opportunity or thought around monetizing the vacations business? And then, Joan, you mentioned the $20 million headwind in 1Q, but how do you see the full year or the rest of your playing out for ALG EBITDA, especially relative to the comments last quarter that 2023 should be a good base year to grow from?

[Joan Bottarini, executive]

Sure, Michael. The ALG vacations headwind in the first quarter, we had an exceptional year first quarter in 2023. And so that is -- it's really out of the ordinary growth that we saw in the first quarter. As you look across the full year, we expect that the remaining 3 quarters of the year will be consistent with 2023.

[Mark Hoplamazian, executive]

And with respect to ALG vacations, the business has grown in strength and grown overall in its capabilities. We've invested heavily in technology. The market share it maintains is high but is -- it continues to grow. And the discovery that we're now in the midst of to unlock additional value-add opportunities for legacy Hyatt properties is incremental value that we think we can extract from this amazing platform. So we have no plans at this point to do anything different with ALG [indiscernible].

[Michael Bellisario, analyst]

Just one quick clarification, Joan, your comments about 2Q to 4Q. Is that for the vacations business or ALG EBITDA overall?

[Joan Bottarini, executive]

It's for the vacations business. We've given some insight into the transaction change for UVC and the model will hold true for fees within the guidance for fees includes the UVC and also the [indiscernible] business.

[Operator]

This concludes today's conference call. Thank you for your participation, and have a wonderful day.