Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
This Quarterly Report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include statements about the Company's plans, strategies, and financial performance; and prospective or future events. Forward-looking statements involve known and unknown risks that are difficult to predict. As a result, our actual results, performance, or achievements may differ materially from those expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as "may," "could," "expect," "intend," "plan," "seek," "anticipate," "believe," "estimate," "predict," "potential," "continue," "likely," "will," "would," and variations of these terms and similar expressions, or the negative of these terms or similar expressions. Such forward-looking statements are necessarily based upon estimates and assumptions that, while considered reasonable by us and our management, are inherently uncertain. Factors that may cause actual results to differ materially from current expectations include, but are not limited to: the factors discussed in our filings with the SEC, including our Annual Report on Form 10-K; general economic uncertainty in key global markets and a worsening of global economic conditions or low levels of economic growth; the rate and the pace of economic recovery following economic downturns; global supply chain constraints and interruptions, rising costs of construction-related labor and materials, and increases in costs due to inflation or other factors that may not be fully offset by increases in revenues in our business; risks affecting the luxury, resort, and all-inclusive lodging segments; levels of spending in business, leisure, and group segments, as well as consumer confidence; declines in occupancy and average daily rate ("ADR"); limited visibility with respect to future bookings; loss of key personnel; domestic and international political and geo-political conditions, including the escalating conflict in Israel, Gaza, and surrounding areas, and political or civil unrest or changes in trade policy; hostilities, or fear of hostilities, including future terrorist attacks, that affect travel; travel-related accidents; natural or man-made disasters, weather and climate-related events, such as earthquakes, tsunamis, tornadoes, hurricanes, droughts, floods, wildfires, oil spills, nuclear incidents, and global outbreaks of pandemics or contagious diseases, or fear of such outbreaks; the pace and consistency of recovery following the COVID-19 pandemic and the long-term effects of the pandemic, including with respect to global and regional economic activity, travel limitations or bans, the demand for travel, transient and group business, and levels of consumer confidence; the ability of third-party owners, franchisees, or hospitality venture partners to successfully navigate the impacts of the COVID-19 pandemic, any additional resurgence, or COVID-19 variants or other pandemics, epidemics or other health crises; our ability to successfully achieve certain levels of operating profits at hotels that have performance tests or guarantees in favor of our third-party owners; the impact of hotel renovations and redevelopments; risks associated with our capital allocation plans, share repurchase program, and dividend payments, including a reduction in, or elimination or suspension of, repurchase activity or dividend payments; the seasonal and cyclical nature of the real estate and hospitality businesses; changes in distribution arrangements, such as through internet travel intermediaries; changes in the tastes and preferences of our customers; relationships with colleagues and labor unions and changes in labor laws; the financial condition of, and our relationships with, third-party property owners, franchisees, and hospitality venture partners; the possible inability of third-party owners, franchisees, or development partners to access the capital necessary to fund current operations or implement our plans for growth; risks associated with potential acquisitions and dispositions and our ability to successfully integrate completed acquisitions with existing operations, including with respect to our acquisition of Apple Leisure Group and Dream Hotel Group and the successful integration of each business; failure to successfully complete proposed transactions (including the failure to satisfy closing conditions or obtain required approvals); our ability to successfully execute on our strategy to expand our management and franchising business while at the same time reducing our real estate asset base within targeted timeframes and at expected values; declines in the value of our real estate assets; unforeseen terminations of our management or franchise agreements; changes in federal, state, local, or foreign tax law; increases in interest rates, wages, and other operating costs; foreign exchange rate fluctuations or currency restructurings; risks associated with the introduction of new brand concepts, including lack of acceptance of new brands or innovation; general volatility of the capital markets and our ability to access such markets; changes in the competitive environment in our industry, including as a result of the COVID-19 pandemic, industry consolidation, and the markets where we operate; our ability to successfully grow the World of Hyatt loyalty program and Unlimited Vacation Club paid membership program; cyber incidents and information technology failures; outcomes of legal or administrative proceedings; and violations of regulations or laws related to our franchising business and licensing businesses and our international operations.
These factors are not necessarily all of the important factors that could cause our actual results, performance, or achievements to differ materially from those expressed in or implied by any of our forward-looking statements. Other unknown or unpredictable factors could also harm our business, financial condition, results of operations, or cash flows. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements speak only as of the date
they are made, and we do not undertake or assume any obligation to update publicly any of these forward-looking statements to reflect actual results, new information or future events, changes in assumptions, or changes in other factors affecting forward-looking statements, except to the extent required by applicable law. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
The following discussion should be read in conjunction with the Company's condensed consolidated financial statements and accompanying Notes, which appear elsewhere in this Quarterly Report on Form 10-Q.
Executive Overview
Our portfolio of properties consists of full service hotels and resorts, select service hotels, all-inclusive resorts, and other properties, including timeshare, fractional, and other forms of residential and vacation units.
At September 30, 2023, our hotel portfolio consisted of 1,310 hotels (313,257 rooms), including:
•481 managed properties (144,848 rooms), all of which we operate under management and hotel services agreements with third-party property owners;
•627 franchised properties (105,233 rooms), all of which are owned by third parties that have franchise agreements with us and are operated by third parties;
•120 all-inclusive resorts (38,712 rooms), including 106 owned by third parties (34,284 rooms) and operated under management or marketing services agreements, 8 owned by a third party in which we hold common shares (3,153 rooms) and operated under franchise agreements, and 6 operating leased properties (1,275 rooms);
•23 owned properties (10,162 rooms), 1 finance leased property (171 rooms), and 4 operating leased properties (1,697 rooms), all of which we manage;
•22 managed properties and 2 franchised properties owned or leased by unconsolidated hospitality ventures (7,575 rooms); and
•30 franchised properties (4,859 rooms) operated by an unconsolidated hospitality venture in connection with a master license agreement by Hyatt; 6 of these properties (1,254 rooms) are leased by the unconsolidated hospitality venture.
Our property portfolio also included:
•22 vacation units under the Hyatt Vacation Club brand and operated by third parties; and
•38 residential units, which consist of branded residences and serviced apartments. We manage all of the serviced apartments and those branded residential units that participate in a rental program with an adjacent Hyatt-branded hotel.
Additionally, we provide certain reservation and/or loyalty program services to hotels that are unaffiliated with our hotel portfolio and operate under other tradenames or marks owned by such hotels or licensed by third parties. We also offer distribution and destination management services through ALG Vacations, a paid membership program through the Unlimited Vacation Club, and a boutique and luxury global travel platform through Mr & Mrs Smith.
We report our consolidated operations in U.S. dollars. Amounts are reported in millions, unless otherwise noted. Percentages may not recompute due to rounding, and percentage changes that are not meaningful are presented as "NM." Constant currency disclosures used throughout Management's Discussion and Analysis of Financial Condition and Results of Operations are non-GAAP measures. See "—Non-GAAP Measures" for further discussion of constant currency disclosures. We manage our business within five reportable segments as described below:
•Owned and leased hotels consist of our owned and leased full service and select service hotels and, for purposes of segment Adjusted EBITDA, our pro rata share of unconsolidated hospitality ventures' Adjusted EBITDA, based on our ownership percentage of each venture;
•Americas management and franchising ("Americas") consists of our management and franchising of properties, including all-inclusive resorts under the Hyatt Ziva and Hyatt Zilara brand names, located in the United States, Canada, the Caribbean, Mexico, Central America, and South America;
•ASPAC management and franchising ("ASPAC") consists of our management and franchising of properties located in Greater China, East and Southeast Asia, the Indian subcontinent, and Oceania;
•EAME management and franchising ("EAME") consists of our management and franchising of properties located in Europe, Africa, the Middle East, and Central Asia; and
•Apple Leisure Group consists of distribution and destination management services offered through ALG Vacations; management and marketing of primarily all-inclusive ALG resorts in Mexico, the Caribbean, Central America, South America, and Europe; and the Unlimited Vacation Club paid membership program, which offers benefits exclusively at ALG resorts primarily within Mexico, the Caribbean, and Central America.
Within corporate and other, we include results related to our co-branded credit card programs, the results from Mr & Mrs Smith, and unallocated corporate expenses.
During the three months ended September 30, 2023, we completed the sale of the Destination Residential Management business, which was reported in the Americas management and franchising segment prior to the sale. See Part I, Item 1 "Financial Statements—Note 6 to our Condensed Consolidated Financial Statements" for further discussion.
Effective January 1, 2023, our EAME and ASPAC management and franchising segments have been geographically realigned. See Part I, Item 1 "Financial Statements—Note 16 to our Condensed Consolidated Financial Statements" for further discussion of our segment structure.
Overview of Financial Results
Consolidated revenues increased $81 million, or 5.2%, during the quarter ended September 30, 2023 compared to the quarter ended September 30, 2022. The increases in owned and leased hotels revenues; management, franchise, license, and other fees revenues; and revenues for the reimbursement of costs incurred on behalf of managed and franchised properties of $20 million, $26 million, and $49 million, respectively, were driven by improved operating performance as compared to the same period in the prior year, largely driven by increased demand and ADR. Distribution and destination management revenues decreased $22 million, compared to the prior year period, as we experienced unseasonably high demand in this business in 2022, which did not recur in 2023.
Comparable system-wide hotels revenue per available room ("RevPAR") for the quarter ended September 30, 2023 was $145, which represented an improvement of 8.9% compared to the quarter ended September 30, 2022 in constant currency. The increase was primarily driven by higher demand and ADR across all segments, with the most significant increase from the ASPAC management and franchising segment. See "—Segment Results" for discussion of RevPAR by segment.
During the three months ended September 30, 2023, compared to the three months ended September 30, 2022, leisure transient travel remained strong, and business transient demand continued to improve. We also experienced continued growth in group travel, as comparable system-wide group rooms revenues increased 10% compared to the three months ended September 30, 2022.
For the quarter ended September 30, 2023, we reported net income attributable to Hyatt Hotels Corporation of $68 million, representing an increase of $40 million, compared to the three months ended September 30, 2022, primarily driven by increased management and franchise fees across the portfolio and an increase in gains on sales of real estate and other, partially offset by increased selling, general, and administrative expenses. Additionally, during 2022, we recognized restructuring expenses for severance costs related to the planned future redevelopment of an owned hotel.
Our consolidated Adjusted EBITDA for the quarter ended September 30, 2023 was $247 million, a decrease of $5 million compared to the quarter ended September 30, 2022. The increase in management and franchise fees, most significantly in our ASPAC management and franchising segment, was more than offset by a decrease in distribution and destination management revenues, as we experienced unseasonably high demand in this business in 2022, which did not recur in 2023, and an increase in selling, general, and administrative expenses. See "—Segment Results" for further discussion. See "—Non-GAAP Measures" for an explanation of how we utilize
Adjusted EBITDA, why we present it, and material limitations on its usefulness, as well as a reconciliation of our net income attributable to Hyatt Hotels Corporation to EBITDA and a reconciliation of EBITDA to consolidated Adjusted EBITDA.
During the quarter ended September 30, 2023, we returned $144 million of capital to our stockholders through share repurchases and $16 million through our quarterly dividend payments.
Results of Operations
Three and Nine Months Ended September 30, 2023 Compared with Three and Nine Months Ended September 30, 2022
Discussion on Consolidated Results
For additional information regarding our consolidated results, refer to our condensed consolidated statements of income included in this Quarterly Report. See "—Segment Results" for further discussion.
The impact from our investments in marketable securities held to fund our deferred compensation plans through rabbi trusts was recognized on the following financial statement line items and had no impact on net income: revenues for the reimbursement of costs incurred on behalf of managed and franchised properties; owned and leased hotels expenses; selling, general, and administrative expenses; costs incurred on behalf of managed and franchised properties; and net gains (losses) and interest income from marketable securities held to fund rabbi trusts.
Owned and leased hotels revenues.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) | | Currency Impact |
| Comparable owned and leased hotels revenues | $ | 317 | | | $ | 287 | | | $ | 30 | | | 10.5 | % | | $ | 6 | |
| Non-comparable owned and leased hotels revenues | 12 | | | 22 | | | (10) | | | (44.4) | % | | — | |
| Total owned and leased hotels revenues | $ | 329 | | | $ | 309 | | | $ | 20 | | | 6.8 | % | | $ | 6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) | | Currency Impact |
| Comparable owned and leased hotels revenues | $ | 959 | | | $ | 796 | | | $ | 163 | | | 20.5 | % | | $ | 6 | |
| Non-comparable owned and leased hotels revenues | 25 | | | 115 | | | (90) | | | (78.2) | % | | — | |
| Total owned and leased hotels revenues | $ | 984 | | | $ | 911 | | | $ | 73 | | | 8.1 | % | | $ | 6 | |
Comparable owned and leased hotels revenues increased during the three and nine months ended September 30, 2023, compared to the same periods in the prior year, driven by increased demand, which contributed to increased rooms and food and beverage revenues, as well as higher ADR in most markets. The nine months ended September 30, 2022 were also negatively impacted by travel disruptions as a result of the COVID-19 Omicron variant in the beginning of 2022.
Non-comparable owned and leased hotels revenues decreased during the three and nine months ended September 30, 2023, compared to the three and nine months ended September 30, 2022, primarily driven by disposition activity in 2022.
Management, franchise, license, and other fees revenues.
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| Three Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) |
| Base management fees | $ | 94 | | | $ | 84 | | | $ | 10 | | | 11.6 | % |
| Incentive management fees | 51 | | | 43 | | | 8 | | | 20.6 | % |
| Franchise, license, and other fees | 105 | | | 97 | | | 8 | | | 7.1 | % |
| Management, franchise, license, and other fees | $ | 250 | | | $ | 224 | | | $ | 26 | | | 11.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) | | | | | | | | |
| Management, franchise, license, and other fees | $ | 250 | | | $ | 224 | | | $ | 26 | | | 11.4 | % | | | | | | | | |
| Contra revenue | (12) | | | (9) | | | (3) | | | (31.7) | % | | | | | | | | |
| Net management, franchise, license, and other fees | $ | 238 | | | $ | 215 | | | $ | 23 | | | 10.5 | % | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) |
| Base management fees | $ | 281 | | | $ | 223 | | | $ | 58 | | | 25.7 | % |
| Incentive management fees | 167 | | | 128 | | | 39 | | | 31.3 | % |
| Franchise, license, and other fees | 281 | | | 231 | | | 50 | | | 21.2 | % |
| Management, franchise, license and other fees | $ | 729 | | | $ | 582 | | | $ | 147 | | | 25.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) |
| Management, franchise, license, and other fees | $ | 729 | | | $ | 582 | | | $ | 147 | | | 25.1 | % |
| Contra revenue | (34) | | | (27) | | | (7) | | | (25.4) | % |
| Net management, franchise, license, and other fees | $ | 695 | | | $ | 555 | | | $ | 140 | | | 25.1 | % |
The increases in base and incentive management fees during the three and nine months ended September 30, 2023, compared to the same periods in the prior year, were due to increased demand and ADR across the portfolio, with the largest increases within the ASPAC management and franchising segment, most notably in Greater China due to eased travel restrictions. The nine months ended September 30, 2022 were also negatively impacted by travel disruptions as a result of the COVID-19 Omicron variant in the beginning of 2022.
The increases in franchise, license, and other fees revenues for the three and nine months ended September 30, 2023, compared to the three and nine months ended September 30, 2022, were primarily driven by franchise fees in the Americas management and franchising segment due to increased demand and ADR in the United States, commission fee revenues related to Mr & Mrs Smith, and increased license fees related to our co-branded credit card programs. These increases were partially offset by a decrease in other fees in the EAME management and franchising segment as the three months ended September 30, 2022 included fees from the termination of a management contract for a hotel in the pipeline. The increase in franchise fees during the nine months ended September 30, 2023, compared to the same period in the prior year, was also driven by the recovery from the COVID-19 Omicron variant that negatively impacted travel in the beginning of 2022.
Distribution and destination management revenues. During the three months ended September 30, 2023, distribution and destination management revenues decreased $22 million, compared to the three months ended September 30, 2022, as 2022 experienced unseasonably high demand and included certain credits, which did not recur in 2023. During the nine months ended September 30, 2023, distribution and destination management revenues increased $77 million, compared to the nine months ended September 30, 2022, primarily driven by higher pricing. The nine months ended September 30, 2022 were also negatively impacted by travel disruptions as a result of the COVID-19 Omicron variant in the beginning of 2022.
Other revenues. During the three and nine months ended September 30, 2023, other revenues increased $11 million and $32 million, respectively, compared to the three and nine months ended September 30, 2022, primarily driven by the Unlimited Vacation Club paid membership program and our co-branded credit card programs. The Unlimited Vacation Club paid membership program increased primarily due to the amortization of
incremental Unlimited Vacation Club membership contracts, which continue to be signed at higher average prices. These increases were partially offset by our residential management operations as certain properties were negatively impacted by the wildfires on the island of Maui, Hawaii that occurred during the three months ended September 30, 2023
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties.
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| Three Months Ended September 30, |
| 2023 | | 2022 | | Change |
| Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties | $ | 754 | | | $ | 705 | | | $ | 49 | | | 7.1 | % |
| Less: rabbi trust impact (1) | 4 | | | 5 | | | (1) | | | (29.0) | % |
| Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties, excluding rabbi trust impact | $ | 758 | | | $ | 710 | | | $ | 48 | | | 6.8 | % |
| (1) The change is driven by the market performance of the underlying invested assets and offsets with the rabbi trust impact within costs incurred on behalf of managed and franchised properties. |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 | | Change |
| Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties | $ | 2,267 | | | $ | 1,885 | | | $ | 382 | | | 20.3 | % |
| Less: rabbi trust impact (2) | (13) | | | 41 | | | (54) | | | (131.5) | % |
| Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties excluding rabbi trust impact | $ | 2,254 | | | $ | 1,926 | | | $ | 328 | | | 17.0 | % |
| (2) The change is driven by the market performance of the underlying invested assets and offsets with the rabbi trust impact within costs incurred on behalf of managed and franchised properties. |
Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties increased during the three and nine months ended September 30, 2023, compared to the same periods in the prior year, driven by higher reimbursements for payroll and related expenses at managed properties where we are the employer and reimbursements for costs related to system-wide services provided to managed and franchised properties. The higher reimbursements for expenses were due to improved hotel operating performance driven by increased demand, ADR, and the recovery from the COVID-19 Omicron variant that negatively impacted travel in the beginning of 2022, as well as portfolio growth.
Owned and leased hotels expenses.
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| Three Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) | | |
| Comparable owned and leased hotels expenses | $ | 243 | | | $ | 218 | | | $ | (25) | | | (11.6) | % | | |
| Non-comparable owned and leased hotels expenses | 14 | | | 19 | | | 5 | | | 27.1 | % | | |
| | | | | | | | | |
| Rabbi trust impact | (1) | | | (1) | | | — | | | (35.2) | % | | |
| Total owned and leased hotels expenses | $ | 256 | | | $ | 236 | | | $ | (20) | | | (8.7) | % | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) |
| Comparable owned and leased hotels expenses | $ | 717 | | | $ | 601 | | | $ | (116) | | | (19.4) | % |
| Non-comparable owned and leased hotels expenses | 33 | | | 83 | | | 50 | | | 60.5 | % |
| Rabbi trust impact | 3 | | | (9) | | | (12) | | | (127.1) | % |
| Total owned and leased hotels expenses | $ | 753 | | | $ | 675 | | | $ | (78) | | | (11.6) | % |
The increases in comparable owned and leased hotels expenses during the three and nine months ended September 30, 2023, compared to the same periods in the prior year, were primarily due to increased fixed and variable expenses at certain hotels. The nine months ended September 30, 2022 were also impacted by travel
disruptions as a result of the COVID-19 Omicron variant in the beginning of 2022, which contributed to lower variable expenses.
The decreases in non-comparable owned and leased hotels expenses during the three and nine months ended September 30, 2023, compared to the three and nine months ended September 30, 2022, were primarily driven by disposition activity in 2022.
Distribution and destination management expenses. During the three months ended September 30, 2023, compared to the three months ended September 30, 2022, distribution and destination management expenses decreased $4 million due to a decrease in volume as we experienced unseasonably high demand in this business in 2022. During the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, distribution and destination management expenses increased $78 million, primarily driven by increases in certain variable overhead expenses and the recovery from the COVID-19 Omicron variant that negatively impacted travel in the beginning of 2022.
Depreciation and amortization expenses. Depreciation and amortization expenses increased $4 million during the three months ended September 30, 2023, compared to the same period in the prior year, due to assets placed in service, partially offset by the use of an accelerated amortization method for certain ALG intangible assets, which resulted in increased amortization expense in 2022, as well as dispositions of owned hotels. Depreciation and amortization expenses decreased $23 million during the nine months ended September 30, 2023, compared to the same period in the prior year, primarily driven by the aforementioned accelerated amortization method for certain ALG intangible assets, as well as dispositions of owned hotels.
Other direct costs. During the three and nine months ended September 30, 2023, other direct costs increased $8 million and $57 million, respectively, compared to the same periods in the prior year, primarily driven by the Unlimited Vacation Club paid membership program and our co-branded credit card programs. The increases in the Unlimited Vacation Club paid membership program expenses were due to increased marketing and overhead costs from incremental contract sales as well as increased amortization of deferred commission expenses related to membership contract sales and upgrades, while the increases in our co-branded credit card programs were driven by a higher volume of point transfers. These increases were partially offset by lower revenues allocated to the loyalty program from our co-branded credit card programs and decreased expenses related to our residential management operations as certain properties were negatively impacted by the wildfires on the island of Maui, Hawaii that occurred during the three months ended September 30, 2023.
Selling, general, and administrative expenses.
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| Three Months Ended September 30, |
| 2023 | | 2022 | | Change |
| Selling, general, and administrative expenses | $ | 131 | | | $ | 108 | | | $ | 23 | | | 21.2 | % |
| Less: rabbi trust impact | 8 | | | 11 | | | (3) | | | (27.1) | % |
| Less: stock-based compensation expense | (12) | | | (7) | | | (5) | | | (67.5) | % |
| Adjusted selling, general, and administrative expenses | $ | 127 | | | $ | 112 | | | $ | 15 | | | 13.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 | | Change |
| Selling, general, and administrative expenses | $ | 434 | | | $ | 295 | | | $ | 139 | | | 46.9 | % |
| Less: rabbi trust impact | (23) | | | 80 | | | (103) | | | (130.0) | % |
| Less: stock-based compensation expense | (58) | | | (47) | | | (11) | | | (21.3) | % |
| Adjusted selling, general, and administrative expenses | $ | 353 | | | $ | 328 | | | $ | 25 | | | 7.6 | % |
Selling, general, and administrative expenses increased during the three and nine months ended September 30, 2023, compared to the three and nine months ended September 30, 2022, primarily driven by increased payroll and related costs, professional fees, and travel expenses, partially offset by a decrease in bad debt expense. Selling, general, and administrative expenses also increased during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, due to the improved market performance of the underlying investments in marketable securities held to fund our deferred compensation plans through rabbi trusts.
Adjusted selling, general, and administrative expenses exclude the impact of deferred compensation plans funded through rabbi trusts and stock-based compensation expense. See "—Non-GAAP Measures" for further discussion of Adjusted selling, general, and administrative expenses.
Costs incurred on behalf of managed and franchised properties.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2023 | | 2022 | | Change |
| Costs incurred on behalf of managed and franchised properties | $ | 764 | | | $ | 697 | | | $ | 67 | | | 9.8 | % |
| Less: rabbi trust impact (1) | 4 | | | 5 | | | (1) | | | (29.0) | % |
| Costs incurred on behalf of managed and franchised properties, excluding rabbi trust impact | $ | 768 | | | $ | 702 | | | $ | 66 | | | 9.5 | % |
| (1) The change is driven by the market performance of the underlying invested assets and offsets with the rabbi trust impact within revenues for the reimbursement of costs incurred on behalf of managed and franchised properties. |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 | | Change |
| Costs incurred on behalf of managed and franchised properties | $ | 2,302 | | | $ | 1,881 | | | $ | 421 | | | 22.4 | % |
| Less: rabbi trust impact (2) | (13) | | | 41 | | | (54) | | | (131.5) | % |
| Costs incurred on behalf of managed and franchised properties excluding rabbi trust impact | $ | 2,289 | | | $ | 1,922 | | | $ | 367 | | | 19.1 | % |
| (2) The change is driven by the market performance of the underlying invested assets and offsets with the rabbi trust impact within revenues for the reimbursement of costs incurred on behalf of managed and franchised properties. |
Costs incurred on behalf of managed and franchised properties increased during the three and nine months ended September 30, 2023, compared to the three and nine months ended September 30, 2022, driven by increased payroll and related expenses at managed properties where we are the employer and expenses related to system-wide services provided to managed and franchised properties. The higher expenses were due to improved hotel operating performance driven by increased demand, ADR, and the recovery from the COVID-19 Omicron variant that negatively impacted travel in the beginning of 2022, as well as portfolio growth.
Net gains (losses) and interest income from marketable securities held to fund rabbi trusts.
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| Three Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) |
| Rabbi trust gains (losses) allocated to selling, general, and administrative expenses | $ | (8) | | | $ | (11) | | | $ | 3 | | | 27.1 | % |
| Rabbi trust gains (losses) allocated to owned and leased hotels expenses | (1) | | | (1) | | | — | | | 35.2 | % |
| Net gains (losses) and interest income from marketable securities held to fund rabbi trusts | $ | (9) | | | $ | (12) | | | $ | 3 | | | 27.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) |
| Rabbi trust gains (losses) allocated to selling, general, and administrative expenses | $ | 23 | | | $ | (80) | | | $ | 103 | | | 130.0 | % |
| Rabbi trust gains (losses) allocated to owned and leased hotels expenses | 3 | | | (9) | | | 12 | | | 127.1 | % |
| Net gains (losses) and interest income from marketable securities held to fund rabbi trusts | $ | 26 | | | $ | (89) | | | $ | 115 | | | 129.7 | % |
Net gains (losses) and interest income from marketable securities held to fund rabbi trusts increased during the three and nine months ended September 30, 2023, compared to the same periods in the prior year, driven by the performance of the underlying invested assets.
Equity earnings (losses) from unconsolidated hospitality ventures.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | Better /
(Worse) | | 2023 | | 2022 | | Better /
(Worse) |
| Hyatt's share of unconsolidated hospitality ventures net losses excluding foreign currency | $ | (2) | | | $ | (2) | | | $ | — | | | $ | (11) | | | $ | (23) | | | $ | 12 | |
Net gains from sales activity related to unconsolidated hospitality ventures (Note 4) | — | | | — | | | — | | | — | | | 4 | | | (4) | |
| Hyatt's share of unconsolidated hospitality ventures foreign currency exchange, net | 3 | | | — | | | 3 | | | 6 | | | — | | | 6 | |
| Distributions from unconsolidated hospitality ventures | 4 | | | 2 | | | 2 | | | 5 | | | 7 | | | (2) | |
| Other | 2 | | | 2 | | | — | | | 4 | | | 6 | | | (2) | |
| Equity earnings (losses) from unconsolidated hospitality ventures | $ | 7 | | | $ | 2 | | | $ | 5 | | | $ | 4 | | | $ | (6) | | | $ | 10 | |
Interest expense. Interest expense increased $3 million during the three months ended September 30, 2023, compared to the same period in the prior year, primarily due to the issuance of the 2027 Notes. Interest expense decreased $11 million during the nine months ended September 30, 2023, compared to the same period in the prior year, primarily due to repurchases and redemptions of certain of our Senior Notes in 2023 and 2022. See Part I, Item 1, "Financial Statements—Note 9 to our Condensed Consolidated Financial Statements" for additional information.
Gains (losses) on sales of real estate and other. During the three months ended September 30, 2023, we recognized a $19 million pre-tax gain related to the sale of the Destination Residential Management business.
During the nine months ended September 30, 2022, we recognized the following:
•$137 million pre-tax gain related to the sale of Grand Hyatt San Antonio River Walk;
•$51 million pre-tax gain related to the sale of The Driskill;
•$40 million pre-tax gain related to the sale of Hyatt Regency Indian Wells Resort & Spa; and
•$24 million pre-tax gain related to the sale of The Confidante Miami Beach.
See Part I, Item 1 "Financial Statements—Note 6 to our Condensed Consolidated Financial Statements" for additional information.
Asset impairments. During the three and nine months ended September 30, 2023, we recognized $6 million and $13 million, respectively, of impairment charges, primarily related to intangible assets, as a result of contract terminations. During three and nine months ended September 30, 2022, we recognized $9 million and $12 million, respectively, of asset impairment charges related to intangible assets, primarily as a result of contract terminations. Additionally, during the nine months ended September 30, 2022, we recognized a $7 million goodwill impairment charge in connection with the sale of Grand Hyatt San Antonio River Walk.
Other income (loss), net. Other income (loss), net increased $48 million and $133 million during the three and nine months ended September 30, 2023, respectively, compared to the same periods in the prior year. See Part I, Item 1 "Financial Statements—Note 18 to our Condensed Consolidated Financial Statements" for additional information.
Provision for income taxes.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2023 | | 2022 | | Change |
| Income before income taxes | $ | 101 | | | $ | 63 | | | $ | 38 | | | 61.2 | % |
| Provision for income taxes | (33) | | | (35) | | | 2 | | | 5.1 | % |
| Effective tax rate | 33.4 | % | | 56.6 | % | | | | (23.2) | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 | | Change |
| Income before income taxes | $ | 301 | | | $ | 304 | | | $ | (3) | | | (0.9) | % |
| Provision for income taxes | (107) | | | (143) | | | 36 | | | 25.1 | % |
| Effective tax rate | 35.7 | % | | 47.2 | % | | | | (11.5) | % |
The decrease in the provision for income taxes for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, was primarily driven by the sales of Hyatt Regency Indian Wells Resort & Spa, Grand Hyatt San Antonio River Walk, The Driskill, and The Confidante Miami Beach in 2022. See Part I, Item 1 "Financial Statements—Note 11 to our Condensed Consolidated Financial Statements" for additional information.
Segment Results
As described in Part I, Item 1 "Financial Statements—Note 16 to our Condensed Consolidated Financial Statements," we evaluate segment operating performance using owned and leased hotels revenues; management, franchise, license, and other fees revenues; distribution and destination management revenues; and Adjusted EBITDA. Segment results for the three and nine months ended September 30, 2022 have been adjusted retrospectively to reflect the change in reportable segments effective January 1, 2023.
Owned and leased hotels segment revenues.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) | | Currency Impact |
| Comparable owned and leased hotels revenues | $ | 310 | | | $ | 282 | | | $ | 28 | | | 9.9 | % | | $ | 6 | |
| Non-comparable owned and leased hotels revenues | 8 | | | 18 | | | (10) | | | (56.7) | % | | — | |
| | | | | | | | | |
| Total segment revenues | $ | 318 | | | $ | 300 | | | $ | 18 | | | 5.8 | % | | $ | 6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) | | Currency Impact |
| Comparable owned and leased hotels revenues | $ | 961 | | | $ | 801 | | | $ | 160 | | | 20.0 | % | | $ | 6 | |
| Non-comparable owned and leased hotels revenues | 20 | | | 111 | | | (91) | | | (82.0) | % | | — | |
| | | | | | | | | |
| Total segment revenues | $ | 981 | | | $ | 912 | | | $ | 69 | | | 7.5 | % | | $ | 6 | |
Comparable owned and leased hotels revenues increased during the three and nine months ended September 30, 2023, compared to the same periods in the prior year, driven by increased demand, which contributed to increased rooms and food and beverage revenues, as well as higher ADR in most markets. The nine months ended September 30, 2022 were also negatively impacted by travel disruptions as a result of the COVID-19 Omicron variant in the beginning of 2022.
Non-comparable owned and leased hotels revenues decreased during the three and nine months ended September 30, 2023, compared to the three and nine months ended September 30, 2022, primarily driven by disposition activity in 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, |
| | | RevPAR | | Occupancy | | ADR |
| Number of comparable hotels | | 2023 | | | | | | vs. 2022
(in constant $) | | 2023 | | | | vs. 2022 | | 2023 | | | | | | vs. 2022
(in constant $) |
| Comparable owned and leased hotels | 26 | | | $ | 194 | | | | | | | 6.3 | % | | 73.1 | % | | | | 2.9% pts | | $ | 265 | | | | | | | 2.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Nine Months Ended September 30, |
| | | RevPAR | | Occupancy | | ADR |
| Number of comparable hotels | | 2023 | | | | | | vs. 2022
(in constant $) | | 2023 | | | | vs. 2022 | | 2023 | | | | | | vs. 2022
(in constant $) |
| Comparable owned and leased hotels | 26 | | | $ | 197 | | | | | | | 19.4 | % | | 72.1 | % | | | | 8.5% pts | | $ | 274 | | | | | | | 5.4 | % |
The increases in RevPAR at our comparable owned and leased hotels during the three and nine months ended September 30, 2023, compared to the same periods in the prior year, were driven by strong ADR as well as group demand and growth in business transient travel. The nine months ended September 30, 2022 were also negatively impacted by travel disruptions as a result of the COVID-19 Omicron variant in the beginning of 2022.
During the three and nine months ended September 30, 2023, no properties were removed from the comparable owned and leased hotels results.
Owned and leased hotels segment Adjusted EBITDA.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) |
| Owned and leased hotels Adjusted EBITDA | $ | 50 | | | $ | 51 | | | $ | (1) | | | (5.0) | % |
| Pro rata share of unconsolidated hospitality ventures' Adjusted EBITDA | 14 | | | 15 | | | (1) | | | (0.5) | % |
| Segment Adjusted EBITDA | $ | 64 | | | $ | 66 | | | $ | (2) | | | (4.0) | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) |
| Owned and leased hotels Adjusted EBITDA | $ | 177 | | | $ | 181 | | | $ | (4) | | | (2.7) | % |
| Pro rata share of unconsolidated hospitality ventures' Adjusted EBITDA | 45 | | | 38 | | | 7 | | | 19.6 | % |
| Segment Adjusted EBITDA | $ | 222 | | | $ | 219 | | | $ | 3 | | | 1.2 | % |
Noncomparable owned and leased hotels Adjusted EBITDA decreased during the three and nine months ended September 30, 2023 primarily due to disposition activity in 2022. Comparable owned and leased hotels Adjusted EBITDA increased during the three and nine months ended September 30, 2023 primarily due to higher demand in most markets, partially offset by increased fixed and variable expenses at certain hotels. The increase in Adjusted EBITDA at our comparable owned and leased hotels during the nine months ended September 30, 2023, compared to the same period in the prior year, was also driven by the recovery from the COVID-19 Omicron variant that negatively impacted travel in the beginning of 2022.
Our pro rata share of unconsolidated hospitality ventures' Adjusted EBITDA increased during the nine months ended September 30, 2023, compared to the same period in 2022, primarily driven by improved hotel performance.
Americas management and franchising segment revenues.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) |
| Segment revenues | | | | | | | |
| Management, franchise, license, and other fees | $ | 137 | | | $ | 127 | | | $ | 10 | | | 6.6 | % |
| Contra revenue | (7) | | | (5) | | | (2) | | | (9.8) | % |
| Other revenues | 20 | | | 28 | | | (8) | | | (29.1) | % |
| Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties (1) | 659 | | | 614 | | | 45 | | | 7.4 | % |
| Total segment revenues | $ | 809 | | | $ | 764 | | | $ | 45 | | | 5.9 | % |
(1) See "—Results of Operations" for further discussion regarding the increase in revenues for the reimbursement of costs incurred on behalf of managed and franchised properties. |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) |
| Segment revenues | | | | | | | |
| Management, franchise, license, and other fees | $ | 412 | | | $ | 354 | | | $ | 58 | | | 15.9 | % |
| Contra revenue | (19) | | | (17) | | | (2) | | | (6.5) | % |
| Other revenues | 83 | | | 91 | | | (8) | | | (9.0) | % |
| Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties (2) | 1,986 | | | 1,632 | | | 354 | | | 21.7 | % |
| Total segment revenues | $ | 2,462 | | | $ | 2,060 | | | $ | 402 | | | 19.5 | % |
| (2) See "—Results of Operations" for further discussion regarding the increase in revenues for the reimbursement of costs incurred on behalf of managed and franchised properties. |
The increases in management, franchise, license, and other fees for the three and nine months ended September 30, 2023, compared to the three and nine months ended September 30, 2022, were driven by increases in management and franchise fees primarily due to improved group business, continued strength in transient travel, and portfolio growth. The decreases in other revenues are primarily related to our residential management operations as certain properties were negatively impacted by the wildfires on the island of Maui, Hawaii that occurred during the three months ended September 30, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| | | RevPAR | | Occupancy | | ADR |
| Number of comparable hotels | | 2023 | | | | | | vs. 2022
(in constant $) | | 2023 | | | | vs. 2022 | | 2023 | | | | | | vs. 2022
(in constant $) |
| Comparable Americas system-wide hotels | 700 | | | $ | 152 | | | | | | | 2.9 | % | | 72.1 | % | | | | 1.4% pts | | $ | 211 | | | | | | | 0.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| | | RevPAR | | Occupancy | | ADR |
| Number of comparable hotels | | 2023 | | | | | | vs. 2022
(in constant $) | | 2023 | | | | vs. 2022 | | 2023 | | | | | | vs. 2022
(in constant $) |
| Comparable Americas system-wide hotels | 700 | | | $ | 150 | | | | | | | 10.9 | % | | 70.0 | % | | | | 4.4% pts | | $ | 214 | | | | | | | 3.9 | % |
The RevPAR increases at our comparable Americas system-wide hotels during the three and nine months ended September 30, 2023, compared to the three and nine months ended September 30, 2022, were driven by improved group business and continued growth in transient travel. The nine months ended September 30, 2022 were also negatively impacted by travel disruptions as a result of the COVID-19 Omicron variant in the beginning of 2022.
During the three months ended September 30, 2023, we removed five properties from the comparable Americas system-wide hotel results as four properties left the hotel portfolio, and one property temporarily suspended operations. During the nine months ended September 30, 2023, we removed six additional properties
from the comparable Americas system-wide hotel results as five properties left the hotel portfolio, and one property underwent a significant renovation.
Americas management and franchising segment Adjusted EBITDA.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) |
| Segment Adjusted EBITDA | $ | 114 | | | $ | 114 | | | $ | — | | | (0.2) | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) |
| Segment Adjusted EBITDA | $ | 355 | | | $ | 316 | | | $ | 39 | | | 12.4 | % |
During the three and nine months ended September 30, 2023, compared to the three and nine months ended September 30, 2022, the increase in management and franchise fees was partially offset by an increase in selling, general, and administrative expenses, primarily due to professional fees and payroll and related costs. Additionally, during the three and nine months ended September 30, 2023, compared to the three and nine months ended September 30, 2022, the decrease in other revenues was partially offset by a decrease in expenses related to our residential management operations.
ASPAC management and franchising segment revenues.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) |
| Segment revenues | | | | | | | |
| Management, franchise, license, and other fees | $ | 42 | | | $ | 30 | | | $ | 12 | | | 39.6 | % |
| Contra revenue | (1) | | | (1) | | | — | | | 5.6 | % |
| Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties (1) | 39 | | | 43 | | | (4) | | | (8.0) | % |
| Total segment revenues | $ | 80 | | | $ | 72 | | | $ | 8 | | | 11.9 | % |
(1) See "—Results of Operations" for further discussion regarding the increase in revenues for the reimbursement of costs incurred on behalf of managed and franchised properties. |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) |
| Segment revenues | | | | | | | |
| Management, franchise, license, and other fees | $ | 122 | | | $ | 67 | | | $ | 55 | | | 80.9 | % |
| Contra revenue | (3) | | | (3) | | | — | | | 12.5 | % |
| Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties (2) | 115 | | | 114 | | | 1 | | | 1.0 | % |
| Total segment revenues | $ | 234 | | | $ | 178 | | | $ | 56 | | | 31.3 | % |
| (2) See "—Results of Operations" for further discussion regarding the increase in revenues for the reimbursement of costs incurred on behalf of managed and franchised properties. |
Management, franchise, license, and other fees increased for the three and nine months ended September 30, 2023, compared to the same periods in the prior year, due to increases in management fees across all markets driven by strong demand and ADR. In Greater China, management fees increased due to the easing of COVID-19 pandemic travel restrictions.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, |
| | | RevPAR | | Occupancy | | ADR |
| Number of comparable hotels | | 2023 | | | | | | vs. 2022
(in constant $) | | 2023 | | | | vs. 2022 | | 2023 | | | | | | vs. 2022
(in constant $) |
| Comparable ASPAC system-wide hotels | 201 | | | $ | 118 | | | | | | | 41.6 | % | | 72.3 | % | | | | 12.6% pts | | $ | 163 | | | | | | | 17.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Nine Months Ended September 30, |
| | | RevPAR | | Occupancy | | ADR |
| Number of comparable hotels | | 2023 | | | | | | vs. 2022
(in constant $) | | 2023 | | | | vs. 2022 | | 2023 | | | | | | vs. 2022
(in constant $) |
| Comparable ASPAC system-wide hotels | 201 | | | $ | 113 | | | | | | | 70.2 | % | | 68.7 | % | | | | 19.2% pts | | $ | 165 | | | | | | | 22.7 | % |
Comparable ASPAC system-wide hotels RevPAR increased for the three and nine months ended September 30, 2023, compared to the three and nine months ended September 30, 2022, due to increased demand and ADR in all markets, with the increase in Greater China primarily due to travel restrictions being eased resulting in RevPAR rates exceeding pre-COVID-19 pandemic levels beginning in the second quarter of 2023.
During the three months ended September 30, 2023, we removed three properties from the comparable ASPAC system-wide hotels results as two properties left the hotel portfolio, and one property experienced a seasonal closure. During the nine months ended September 30, 2023, we removed one additional property from the comparable ASPAC system-wide hotels results as it is undergoing a significant renovation.
ASPAC management and franchising segment Adjusted EBITDA.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) |
| Segment Adjusted EBITDA | $ | 28 | | | $ | 18 | | | $ | 10 | | | 55.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) |
| Segment Adjusted EBITDA | $ | 90 | | | $ | 34 | | | $ | 56 | | | 164.2 | % |
Adjusted EBITDA increased during the three and nine months ended September 30, 2023, compared to the three and nine months ended September 30, 2022, primarily driven by the increases in management fees.
EAME management and franchising segment revenues.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) |
| Segment revenues | | | | | | | |
| Management, franchise, license, and other fees | $ | 22 | | | $ | 26 | | | $ | (4) | | | (15.2) | % |
| Contra revenue | (3) | | | (2) | | | (1) | | | (68.7) | % |
| Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties (1) | 26 | | | 21 | | | 5 | | | 19.7 | % |
| Total segment revenues | $ | 45 | | | $ | 45 | | | $ | — | | | (2.7) | % |
(1) See "—Results of Operations" for further discussion regarding the increase in revenues for the reimbursement of costs incurred on behalf of managed and franchised properties. |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) |
| Segment revenues | | | | | | | |
| Management, franchise, license, and other fees | $ | 64 | | | $ | 57 | | | $ | 7 | | | 12.9 | % |
| Contra revenue | (9) | | | (6) | | | (3) | | | (65.5) | % |
| Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties (2) | 72 | | | 57 | | | 15 | | | 25.8 | % |
| Total segment revenues | $ | 127 | | | $ | 108 | | | $ | 19 | | | 16.7 | % |
| (2) See "—Results of Operations" for further discussion regarding the increase in revenues for the reimbursement of costs incurred on behalf of managed and franchised properties. |
The increase in management and franchise fees during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, was more than offset by the decrease in other fees as the three months ended September 30, 2022 benefited from fees related to the termination of a management contract for a hotel in the pipeline. The increase in management, franchise, license, and other fees during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, was driven by increases in management and franchise fees, primarily in Western and Southern Europe and the Middle East, due to higher demand and ADR resulting from travel disruptions as a result of the COVID-19 Omicron variant in the beginning of 2022, offset by the aforementioned pipeline management contract termination.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, |
| | | RevPAR | | Occupancy | | ADR |
| Number of comparable hotels | | 2023 | | | | | | vs. 2022
(in constant $) | | 2023 | | | | vs. 2022 | | 2023 | | | | | | vs. 2022
(in constant $) |
| Comparable EAME system-wide hotels | 95 | | | $ | 165 | | | | | | | 5.2 | % | | 69.8 | % | | | | 2.7% pts | | $ | 237 | | | | | | | 1.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Nine Months Ended September 30, |
| | | RevPAR | | Occupancy | | ADR |
| Number of comparable hotels | | 2023 | | | | | | vs. 2022
(in constant $) | | 2023 | | | | vs. 2022 | | 2023 | | | | | | vs. 2022
(in constant $) |
| Comparable EAME system-wide hotels | 95 | | | $ | 159 | | | | | | | 20.8 | % | | 67.6 | % | | | | 8.0% pts | | $ | 235 | | | | | | | 6.5 | % |
Comparable EAME system-wide hotels RevPAR increased during the three and nine months ended September 30, 2023, compared to the three and nine months ended September 30, 2022, primarily driven by increased business transient and ADR throughout most markets driven in part by travel disruptions as a result of the COVID-19 Omicron variant in the beginning of 2022.
During the nine months ended September 30, 2023, we removed three properties from the comparable EAME system-wide hotel results as two properties left the hotel portfolio, and one property underwent a significant renovation.
EAME management and franchising segment Adjusted EBITDA.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) |
| Segment Adjusted EBITDA | $ | 16 | | | $ | 18 | | | $ | (2) | | | (14.4) | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) |
| Segment Adjusted EBITDA | $ | 44 | | | $ | 32 | | | $ | 12 | | | 35.0 | % |
Adjusted EBITDA increased during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to the increases in management and franchise fees and decreases in selling, general, and administrative expenses.
Apple Leisure Group segment revenues. | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) |
| Segment revenues | | | | | | | |
| Owned and leased hotels | $ | 19 | | | $ | 16 | | | $ | 3 | | | 24.6 | % |
| Management, franchise, license, and other fees | 38 | | | 40 | | | (2) | | | (4.8) | % |
| Contra revenue | (1) | | | (1) | | | — | | | (376.6) | % |
| Distribution and destination management | 222 | | | 244 | | | (22) | | | (9.4) | % |
| Other revenues | 50 | | | 37 | | | 13 | | | 35.7 | % |
| Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties (1) | 30 | | | 27 | | | 3 | | | 16.2 | % |
| Total segment revenues | $ | 358 | | | $ | 363 | | | $ | (5) | | | (1.3) | % |
(1) See "—Results of Operations" for further discussion regarding the increase in revenues for the reimbursement of costs incurred on behalf of managed and franchised properties. |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) |
| Segment revenues | | | | | | | |
| Owned and leased hotels | $ | 26 | | | $ | 20 | | | $ | 6 | | | 31.9 | % |
| Management, franchise, license, and other fees | 113 | | | 106 | | | 7 | | | 6.8 | % |
| Contra revenue | (3) | | | (1) | | | (2) | | | (333.5) | % |
| Distribution and destination management | 823 | | | 746 | | | 77 | | | 10.2 | % |
| Other revenues | 134 | | | 104 | | | 30 | | | 29.3 | % |
| Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties (2) | 94 | | | 82 | | | 12 | | | 14.9 | % |
| Total segment revenues | $ | 1,187 | | | $ | 1,057 | | | $ | 130 | | | 12.3 | % |
(2) See "—Results of Operations" for further discussion regarding the increase in revenues for the reimbursement of costs incurred on behalf of managed and franchised properties. |
Owned and leased hotels revenues increased during the three and nine months ended September 30, 2023, compared to the three and nine months ended September 30, 2022, primarily due to increased Net Package RevPAR at certain properties. The nine months ended September 30, 2022 were also negatively impacted by travel disruptions as a result of the COVID-19 Omicron variant in the beginning of 2022.
Management, franchise, license, and other fees decreased during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily driven by decreased incentive management fees as hotel profits were negatively impacted by currency, partially offset by an increase in base management fees due to higher ADR and occupancy in the Americas and Europe. Management, franchise, license, and other fees increased during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, as the aforementioned favorability in base management fees more than offset the negative currency impacts on incentive management fees. The nine months ended September 30, 2022 were also negatively impacted by travel disruptions as a result of the COVID-19 Omicron variant in the beginning of 2022.
Distribution and destination management revenues decreased during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, as 2022 experienced unseasonably high demand and included certain credits, which did not recur in 2023. The increase in distribution and destination management revenues during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, was primarily driven by higher pricing. The nine months ended September 30, 2022 were also negatively impacted by travel disruptions as a result of the COVID-19 Omicron variant in the beginning of 2022.
Other revenues increased during the three and nine months ended September 30, 2023, compared to the same periods in the prior year, primarily driven by increased amortization due to incremental Unlimited Vacation Club membership contracts, which continue to be signed at higher average prices.
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| | | Three Months Ended September 30, |
| | | Net Package RevPAR | | Occupancy | | Net Package ADR |
| Number of comparable hotels | | 2023 | | | | | | vs. 2022
(in reported $) | | 2023 | | | | vs. 2022 | | 2023 | | | | | | vs. 2022
(in reported $) |
| Comparable ALG system-wide hotels | 81 | | | $ | 189 | | | | | | | 8.7 | % | | 74.7 | % | | | | 1.2% pts | | $ | 253 | | | | | | | 7.0 | % |
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| | | Nine Months Ended September 30, |
| | | Net Package RevPAR | | Occupancy | | Net Package ADR |
| Number of comparable hotels | | 2023 | | | | | | vs. 2022
(in reported $) | | 2023 | | | | vs. 2022 | | 2023 | | | | | | vs. 2022
(in reported $) |
| Comparable ALG system-wide hotels | 81 | | | $ | 213 | | | | | | | 14.9 | % | | 75.2 | % | | | | 3.8% pts | | $ | 283 | | | | | | | 9.1 | % |
The Net Package RevPAR increases at our comparable ALG system-wide hotels during the three and nine months ended September 30, 2023, compared to the three and nine months ended September 30, 2022, were driven by strong Net Package ADR. The nine months ended September 30, 2022 was also negatively impacted by travel disruptions as a result of the COVID-19 Omicron variant in the beginning of 2022.
During the nine months ended September 30, 2023, we removed one property from the comparable ALG system-wide hotel results as it left the hotel portfolio.
Apple Leisure Group segment Adjusted EBITDA.
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| Three Months Ended September 30, |
| 2023 | | 2022 | | Change |
| Segment Adjusted EBITDA | $ | 50 | | | $ | 78 | | | $ | (28) | | | (35.2) | % |
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| Net Deferral activity | | | | | | | |
| Increase in deferred revenue | $ | 40 | | | $ | 46 | | | $ | (6) | | | (13.3) | % |
| Increase in deferred costs | (26) | | | (29) | | | 3 | | | 10.8 | % |
| Net Deferrals | $ | 14 | | | $ | 17 | | | $ | (3) | | | (17.4) | % |
| Increase in Net Financed Contracts | $ | 21 | | | $ | 26 | | | $ | (5) | | | (20.7) | % |
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| Nine Months Ended September 30, |
| 2023 | | 2022 | | Change |
| Segment Adjusted EBITDA | $ | 178 | | | $ | 188 | | | $ | (10) | | | (5.2) | % |
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| Increase in deferred revenue | $ | 149 | | | $ | 147 | | | $ | 2 | | | 1.3 | % |
| Increase in deferred costs | (76) | | | (81) | | | 5 | | | 6.5 | % |
| Net Deferrals | $ | 73 | | | $ | 66 | | | $ | 7 | | | 10.8 | % |
| Increase in Net Financed Contracts | $ | 52 | | | $ | 48 | | | $ | 4 | | | 8.6 | % |
Adjusted EBITDA decreased during the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022. Net Package RevPAR growth and favorable pricing within ALG Vacations were more than offset by increased expenses within the Unlimited Vacation Club paid membership program, decreased incentive management fees due to unfavorable currency impacts on hotel profits, and incremental strategic investments. Additionally, during the three months ended September 30, 2022, ALG Vacations experienced unseasonably high demand and the benefit of certain credits, which did not recur in 2023.
During the three months ended September 30, 2023, the increase in Net Deferrals was less than the increase during the three months ended September 30, 2022 due to higher amortization as a result of incremental Unlimited Vacation Club membership contracts. During the three months ended September 30, 2023, the increase in Net Financed Contracts was less than the increase during the three months ended September 30, 2022 primarily due to expenses that will be incurred related to free nights for the Unlimited Vacation Club membership contracts. During the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, Net Deferrals and Net Financed Contracts increased due to Unlimited Vacation Club membership contract sales and higher pricing.
Net Deferrals represent cash received in the period for both membership down payments and monthly installment payments on financed contracts, less cash paid for costs incurred to sell new contracts, net of revenues and expenses recognized on our condensed consolidated statements of income during the period.
Net Financed Contracts represent contractual future cash flows due to the Company over an average term of less than 4 years, less expenses that will be incurred to fulfill the contract, net of monthly cash installment payments received during the period. At September 30, 2023 and December 31, 2022, the Net Financed Contract balance not recorded on our condensed consolidated balance sheets was $238 million and $186 million, respectively.
Corporate and other.
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| | Three Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) |
| Revenues | $ | 32 | | | $ | 16 | | | $ | 16 | | | 103.1 | % |
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| Adjusted EBITDA | $ | (25) | | | $ | (42) | | | $ | 17 | | | 41.8 | % |
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| | Nine Months Ended September 30, |
| 2023 | | 2022 | | Better / (Worse) |
| Revenues | $ | 79 | | | $ | 43 | | | $ | 36 | | | 84.2 | % |
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| Adjusted EBITDA | $ | (102) | | | $ | (114) | | | $ | 12 | | | 11.0 | % |
Revenues increased during the three and nine months ended September 30, 2023, compared to the three and nine months ended September 30, 2022, primarily driven by commission fee revenues related to Mr & Mrs Smith and increased license fee revenues related to our co-branded credit card programs. During the nine months ended September 30, 2023, these increases were partially offset by higher expenses related to our co-branded credit card programs.
Non-GAAP Measures
Adjusted Earnings Before Interest Expense, Taxes, Depreciation, and Amortization ("Adjusted EBITDA") and EBITDA
We use the terms Adjusted EBITDA and EBITDA throughout this Quarterly Report. Adjusted EBITDA and EBITDA, as we define them, are non-GAAP measures. We define consolidated Adjusted EBITDA as net income (loss) attributable to Hyatt Hotels Corporation plus our pro rata share of unconsolidated owned and leased hospitality ventures' Adjusted EBITDA based on our ownership percentage of each owned and leased venture, adjusted to exclude the following items:
•interest expense;
•benefit (provision) for income taxes;
•depreciation and amortization;
•contra revenue;
•revenues for the reimbursement of costs incurred on behalf of managed and franchised properties;
•costs incurred on behalf of managed and franchised properties that we intend to recover over the long term;
•equity earnings (losses) from unconsolidated hospitality ventures;
•stock-based compensation expense;
•gains (losses) on sales of real estate and other;
•asset impairments; and
•other income (loss), net.
We calculate consolidated Adjusted EBITDA by adding the Adjusted EBITDA of each of our reportable segments and eliminations to corporate and other Adjusted EBITDA.
Our board of directors and executive management team focus on Adjusted EBITDA as one of the key performance and compensation measures both on a segment and on a consolidated basis. Adjusted EBITDA assists us in comparing our performance over various reporting periods on a consistent basis because it removes from our operating results the impact of items that do not reflect our core operations both on a segment and on a consolidated basis. Our President and Chief Executive Officer, who is our CODM, also evaluates the performance of each of our reportable segments and determines how to allocate resources to those segments, in part, by assessing the Adjusted EBITDA of each segment. In addition, the compensation committee of our board of directors
determines the annual variable compensation for certain members of our management based in part on consolidated Adjusted EBITDA, segment Adjusted EBITDA, or some combination of both.
We believe Adjusted EBITDA is useful to investors because it provides investors with the same information that we use internally for purposes of assessing our operating performance and making compensation decisions and facilitates our comparison of results with results from other companies within our industry.
Adjusted EBITDA excludes certain items that can vary widely across different industries and among companies within the same industry, including interest expense and benefit (provision) for income taxes, which are dependent on company specifics, including capital structure, credit ratings, tax policies, and jurisdictions in which they operate; depreciation and amortization, which are dependent on company policies including how the assets are utilized as well as the lives assigned to the assets; Contra revenue, which is dependent on company policies and strategic decisions regarding payments to hotel owners; and stock-based compensation expense, which varies among companies as a result of different compensation plans companies have adopted. We exclude revenues for the reimbursement of costs and costs incurred on behalf of managed and franchised properties which relate to the reimbursement of payroll costs and for system-wide services and programs that we operate for the benefit of our hotel owners as contractually we do not provide services or operate the related programs to generate a profit over the terms of the respective contracts. Over the long term, these programs and services are not designed to impact our economics, either positively or negatively. Therefore, we exclude the net impact when evaluating period-over-period changes in our operating results. Adjusted EBITDA includes costs incurred on behalf of our managed and franchised properties related to system-wide services and programs that we do not intend to recover from hotel owners. Finally, we exclude other items that are not core to our operations, such as asset impairments and unrealized and realized gains and losses on marketable securities.
Adjusted EBITDA and EBITDA are not substitutes for net income (loss) attributable to Hyatt Hotels Corporation, net income (loss), or any other measure prescribed by GAAP. There are limitations to using non-GAAP measures such as Adjusted EBITDA and EBITDA. Although we believe that Adjusted EBITDA can make an evaluation of our operating performance more consistent because it removes items that do not reflect our core operations, other companies in our industry may define Adjusted EBITDA differently than we do. As a result, it may be difficult to use Adjusted EBITDA or similarly named non-GAAP measures that other companies may use to compare the performance of those companies to our performance. Because of these limitations, Adjusted EBITDA should not be considered as a measure of the income (loss) generated by our business. Our management compensates for these limitations by referencing our GAAP results and using Adjusted EBITDA supplementally. See our condensed consolidated statements of income (loss) in our condensed consolidated financial statements included elsewhere in this Quarterly Report.
See below for a reconciliation of net income (loss) attributable to Hyatt Hotels Corporation to EBITDA and a reconciliation of EBITDA to consolidated Adjusted EBITDA.
Adjusted Selling, General, and Administrative Expenses
Adjusted selling, general, and administrative expenses, as we define it, is a non-GAAP measure. Adjusted selling, general, and administrative expenses exclude the impact of deferred compensation plans funded through rabbi trusts and stock-based compensation expense. Adjusted selling, general, and administrative expenses assist us in comparing our performance over various reporting periods on a consistent basis because it removes from our operating results the impact of items that do not reflect our core operations, both on a segment and consolidated basis. See "—Results of Operations" for a reconciliation of selling, general, and administrative expenses to Adjusted selling, general, and administrative expenses.
Comparable Hotels
"Comparable system-wide hotels" represents all properties we manage or franchise, including owned and leased properties, that are operated for the entirety of the periods being compared and that have not sustained substantial damage, business interruption, or undergone large-scale renovations during the periods being compared. Comparable system-wide hotels also exclude properties for which comparable results are not available. We may use variations of comparable system-wide hotels to specifically refer to comparable system-wide Americas hotels, including our wellness resorts, or our all-inclusive resorts, for those properties that we manage or franchise within the Americas management and franchising segment, comparable system-wide ASPAC hotels for those properties we manage or franchise within the ASPAC management and franchising segment, comparable system-wide EAME hotels for those properties that we manage or franchise within the EAME management and franchising segment, or comparable system-wide ALG all-inclusive resorts for those properties that we manage within the Apple
Leisure Group segment. "Comparable owned and leased hotels" represents all properties we own or lease that are operated and consolidated for the entirety of the periods being compared and have not sustained substantial damage, business interruption, or undergone large-scale renovations during the periods being compared. Comparable owned and leased hotels also excludes properties for which comparable results are not available. Comparable system-wide hotels and comparable owned and leased hotels are commonly used as a basis of measurement in our industry. "Non-comparable system-wide hotels" or "non-comparable owned and leased hotels" represent all hotels that do not meet the respective definition of "comparable" as defined above.
Constant Dollar Currency
We report the results of our operations both on an as-reported basis, as well as on a constant dollar basis. Constant dollar currency, which is a non-GAAP measure, excludes the effects of movements in foreign currency exchange rates between comparative periods. We believe constant dollar analysis provides valuable information regarding our results as it removes currency fluctuations from our operating results. We calculate constant dollar currency by restating prior-period local currency financial results at the current period's exchange rates. These restated amounts are then compared to our current period reported amounts to provide operationally driven variances in our results.
Average Daily Rate
ADR represents hotel room revenues, divided by the total number of rooms sold in a given period. ADR measures the average room price attained by a hotel and ADR trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels. ADR is a commonly used performance measure in our industry, and we use ADR to assess the pricing levels that we are able to generate by customer group, as changes in rates have a different effect on overall revenues and incremental profitability than changes in occupancy, as described below.
Occupancy
Occupancy represents the total number of rooms sold divided by the total number of rooms available at a hotel or group of hotels. Occupancy measures the utilization of a hotel's available capacity. We use occupancy to gauge demand at a specific hotel or group of hotels in a given period. Occupancy levels also help us determine achievable ADR levels as demand for hotel rooms increases or decreases.
RevPAR
RevPAR is the product of the ADR and the average daily occupancy percentage. RevPAR does not include non-room revenues, which consist of ancillary revenues generated by a hotel property, such as food and beverage, parking, and other guest service revenues. Our management uses RevPAR to identify trend information with respect to room revenues from comparable properties and to evaluate hotel performance on a regional and segment basis. RevPAR is a commonly used performance measure in our industry.
RevPAR changes that are driven predominantly by changes in occupancy have different implications for overall revenue levels and incremental profitability than do changes that are driven predominantly by changes in average room rates. For example, increases in occupancy at a hotel would lead to increases in room revenues and additional variable operating costs, including housekeeping services, utilities, and room amenity costs, and could also result in increased ancillary revenues, including food and beverage. In contrast, changes in average room rates typically have a greater impact on margins and profitability as average room rate changes result in minimal impacts to variable operating costs.
Net Package ADR
Net Package ADR represents net package revenues divided by the total number of rooms sold in a given period. Net package revenues generally include revenue derived from the sale of package revenue at all-inclusive resorts comprised of rooms revenue, food and beverage, and entertainment, net of compulsory tips paid to employees. Net Package ADR measures the average room price attained by a hotel, and Net Package ADR trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels. Net Package ADR is a commonly used performance measure in our industry, and we use Net Package ADR to assess the pricing levels that we are able to generate by customer group, as changes in rates have a different effect on overall revenues and incremental profitability than changes in occupancy, as described above.
Net Package RevPAR
Net Package RevPAR is the product of the Net Package ADR and the average daily occupancy percentage. Net Package RevPAR generally includes revenue derived from the sale of package revenue comprised of rooms revenue, food and beverage, and entertainment, net of compulsory tips paid to employees. Our management uses Net Package RevPAR to identify trend information with respect to room revenues from comparable properties and to evaluate hotel performance on a regional and segment basis. Net Package RevPAR is a commonly used performance measure in our industry.
Net Financed Contracts
Net Financed Contracts represent Unlimited Vacation Club contracts signed during the period for which an initial cash down payment has been received and the remaining balance is contractually due in monthly installments over an average term of less than 4 years. The Net Financed Contract balance is calculated as the unpaid portion of membership contracts reduced by expenses related to fulfilling the membership program contracts and further reduced by an allowance for future estimated uncollectible installments. Net Financed Contract balances are not reported on our condensed consolidated balance sheets as our right to collect future installments is conditional on our ability to provide continuous access to member benefits at ALG resorts over the contract term, and the associated expenses to fulfill the membership contracts become liabilities of the Company only after the installments are collected. We believe Net Financed Contracts is useful to investors as it represents an estimate of future cash flows due in accordance with contracts signed in the current period. At September 30, 2023, the Net Financed Contract balance not recorded on our condensed consolidated balance sheet was $238 million.
Net Deferrals
Net Deferrals represent the change in contract liabilities associated with the Unlimited Vacation Club membership contracts less the change in deferred cost assets associated with the contracts. The contract liabilities and deferred cost assets are recognized as revenue and expense, respectively, on our condensed consolidated statements of income (loss) over the customer life, which ranges from 3 to 25 years. We believe Net Deferrals is useful to investors as it represents cash received that will be recognized as revenue in future periods.
The table below provides a reconciliation of our net income attributable to Hyatt Hotels Corporation to EBITDA and a reconciliation of EBITDA to consolidated Adjusted EBITDA:
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| Three Months Ended September 30, |
| 2023 | | 2022 | | Change |
| Net income attributable to Hyatt Hotels Corporation | $ | 68 | | | $ | 28 | | | $ | 40 | | | 147.7 | % |
| Interest expense | 41 | | | 38 | | | 3 | | | 5.6 | % |
| Provision for income taxes | 33 | | | 35 | | | (2) | | | (5.1) | % |
| Depreciation and amortization | 100 | | | 96 | | | 4 | | | 4.2 | % |
| EBITDA | 242 | | | 197 | | | 45 | | | 22.7 | % |
| Contra revenue | 12 | | | 9 | | | 3 | | | 31.7 | % |
| Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties | (754) | | | (705) | | | (49) | | | (7.1) | % |
| Costs incurred on behalf of managed and franchised properties | 764 | | | 697 | | | 67 | | | 9.8 | % |
| Equity (earnings) losses from unconsolidated hospitality ventures | (7) | | | (2) | | | (5) | | | (174.3) | % |
| Stock-based compensation expense | 12 | | | 7 | | | 5 | | | 75.4 | % |
| (Gains) losses on sales of real estate and other | (18) | | | 1 | | | (19) | | | NM |
| Asset impairments | 6 | | | 9 | | | (3) | | | (39.9) | % |
| Other (income) loss, net | (24) | | | 24 | | | (48) | | | (195.3) | % |
| Pro rata share of unconsolidated owned and leased hospitality ventures' Adjusted EBITDA | 14 | | | 15 | | | (1) | | | (0.5) | % |
| Adjusted EBITDA | $ | 247 | | | $ | 252 | | | $ | (5) | | | (1.7) | % |
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| Nine Months Ended September 30, |
| 2023 | | 2022 | | Change |
| Net income attributable to Hyatt Hotels Corporation | $ | 194 | | | $ | 161 | | | $ | 33 | | | 20.7 | % |
| Interest expense | 105 | | | 116 | | | (11) | | | (9.6) | % |
| Provision for income taxes | 107 | | | 143 | | | (36) | | | (25.1) | % |
| Depreciation and amortization | 297 | | | 320 | | | (23) | | | (7.3) | % |
| EBITDA | 703 | | | 740 | | | (37) | | | (5.0) | % |
| Contra revenue | 34 | | | 27 | | | 7 | | | 25.4 | % |
| Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties | (2,267) | | | (1,885) | | | (382) | | | (20.3) | % |
| Costs incurred on behalf of managed and franchised properties | 2,302 | | | 1,881 | | | 421 | | | 22.4 | % |
| Equity (earnings) losses from unconsolidated hospitality ventures | (4) | | | 6 | | | (10) | | | (166.4) | % |
| Stock-based compensation expense | 60 | | | 47 | | | 13 | | | 27.0 | % |
| Gains on sales of real estate and other | (18) | | | (250) | | | 232 | | | 93.0 | % |
| Asset impairments | 13 | | | 19 | | | (6) | | | (34.4) | % |
| Other (income) loss, net | (80) | | | 53 | | | (133) | | | (249.7) | % |
| Pro rata share of unconsolidated hospitality ventures Adjusted EBITDA | 45 | | | 38 | | | 7 | | | 19.6 | % |
| Adjusted EBITDA | $ | 788 | | | $ | 676 | | | $ | 112 | | | 16.6 | % |
Liquidity and Capital Resources
Overview
We finance our business primarily with existing cash, short-term investments, and cash generated from our operations. As part of our long-term business strategy, we use net proceeds from dispositions to pay down debt; support new investment opportunities, including acquisitions; and return capital to our stockholders, when appropriate. If necessary, we borrow cash under our revolving credit facility or from other third-party sources and raise funds by issuing debt or equity securities. We maintain a cash investment policy that emphasizes the preservation of capital.
During the quarter ended September 30, 2023, we issued the 2027 Notes and received approximately $596 million of net proceeds from the sale, which was used, together with cash on hand, to repay $638 million of the outstanding 2023 Notes at maturity. See Part I, Item 1 "Financial Statements—Note 9 to our Condensed Consolidated Financial Statements" for additional information.
We expect to successfully execute our commitment announced in August 2021 to realize $2.0 billion of gross proceeds from the disposition of owned assets, net of acquisitions, by the end of 2024. As of September 30, 2023, we have realized $721 million of proceeds from the net disposition of owned assets as part of this commitment.
We may, from time to time, seek to retire or purchase our outstanding equity and/or debt securities through cash purchases and/or exchanges for other securities in open market purchases, privately negotiated transactions, or otherwise, including pursuant to a Rule 10b5-1 plan or an accelerated share repurchase transaction. Such repurchases or exchanges, if any, will depend on prevailing market conditions, restrictions in our existing or future financing arrangements, our liquidity requirements, contractual restrictions, and other factors. The amounts involved may be material. During the quarter ended September 30, 2023, we returned $144 million of capital to our stockholders through share repurchases. During the three months ended September 30, 2023, we made $16 million of quarterly dividend payments.
We believe that our cash position, short-term investments, cash from operations, borrowing capacity under our revolving credit facility, and access to the capital markets will be adequate to meet all of our funding requirements and capital deployment objectives in both the short term and long term.
Recent Transactions Affecting our Liquidity and Capital Resources
During both the nine months ended September 30, 2023 and September 30, 2022, various transactions impacted our liquidity. See "—Sources and Uses of Cash."
Sources and Uses of Cash
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| Nine Months Ended September 30, |
| 2023 | | 2022 |
| Cash provided by (used in): | | | |
| Operating activities | $ | 426 | | | $ | 403 | |
| Investing activities | (304) | | | 430 | |
| Financing activities | (466) | | | (305) | |
| Effect of exchange rate changes on cash | (5) | | | 26 | |
| Cash, cash equivalents, and restricted cash reclassified to assets held for sale | — | | | (2) | |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | (349) | | | $ | 552 | |
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Cash Flows from Operating Activities
Cash provided by operating activities increased $23 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. The increase was primarily due to improved performance across the portfolio driven by continued recovery from the COVID-19 pandemic and a decrease in cash paid for interest, partially offset by an increase in cash paid for taxes.
Cash Flows from Investing Activities
During the nine months ended September 30, 2023:
•We invested $134 million in capital expenditures (see "—Capital Expenditures").
•We acquired Dream Hotel Group for $125 million of cash.
•We acquired Mr & Mrs Smith for £58 million, approximately $72 million of cash, or $50 million net of cash acquired, using exchange rates as of the acquisition date.
•We issued $31 million of financing receivables.
•We invested $30 million in a convertible debt security.
•We transferred $10 million of cash related to advanced deposits to the buyer of the Destination Residential Management business.
•We received $81 million of net proceeds from the sale of marketable securities and short-term investments.
During the nine months ended September 30, 2022:
•We received $227 million of proceeds, net of closing costs and proration adjustments, from the sale of The Confidante Miami Beach.
•We received $136 million of proceeds, net of closing costs and proration adjustments, from the sale of Hyatt Regency Indian Wells Resort & Spa.
•We received $119 million of proceeds, net of closing costs and proration adjustments, from the sale of The Driskill.
• We received $109 million of cash consideration, net of closing costs, from the sale of Grand Hyatt San Antonio River Walk.
•We received $106 million of net proceeds from the sale of marketable securities and short-term investments.
•We received $38 million of proceeds related to the sale of our ownership interest in an equity method investment and the redemption of a HTM debt security.
• We invested $142 million in capital expenditures (see "—Capital Expenditures").
•We acquired Hyatt Regency Irvine for $135 million of cash, net of closing costs and proration adjustments.
• We paid $39 million related to the ALG Acquisition for amounts due back to the seller for purchase price adjustments.
Cash Flows from Financing Activities
During the nine months ended September 30, 2023:
•We repaid our outstanding 2023 Notes at maturity for approximately $642 million, inclusive of $4 million of accrued interest.
•We repurchased 3,233,926 shares of Class A common stock for an aggregate purchase price of $358 million, inclusive of the payment of a $9 million liability for the repurchase of 106,116 shares recorded at December 31, 2022.
•We paid two quarterly $0.15 per share cash dividends on outstanding shares of Class A and Class B common stock totaling $32 million.
•We repurchased $18 million of our Senior Notes.
•We issued the 2027 Notes and received approximately $596 million of net proceeds, after deducting $4 million of underwriting discounts and other offering expenses.
During the nine months ended September 30, 2022:
•We repurchased 3,075,891 shares of Class A common stock for an aggregate purchase price of $263 million.
•We repurchased $15 million of our Senior Notes.
•We utilized $8 million of restricted cash to defease the Series 2005 Bonds.
We define net debt as total debt less the total of cash and cash equivalents and short-term investments. We consider net debt and its components to be an important indicator of liquidity and a guiding measure of capital structure strategy. Net debt is a non-GAAP measure and may not be computed the same as similarly titled measures used by other companies. The following table provides a summary of our debt-to-capital ratios:
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
| Consolidated debt (1) | $ | 3,055 | | | $ | 3,113 | |
| Stockholders' equity | 3,586 | | | 3,699 | |
| Total capital | 6,641 | | | 6,812 | |
| Total debt to total capital | 46.0 | % | | 45.7 | % |
| Consolidated debt (1) | 3,055 | | | 3,113 | |
| Less: cash and cash equivalents and short-term investments | (727) | | | (1,149) | |
| Net consolidated debt | $ | 2,328 | | | $ | 1,964 | |
| Net debt to total capital | 35.1 | % | | 28.8 | % |
(1) Excludes approximately $547 million and $538 million of our share of unconsolidated hospitality venture indebtedness at September 30, 2023 and December 31, 2022, respectively, substantially all of which is non-recourse to us and a portion of which we guarantee pursuant to separate agreements.
Capital Expenditures
We routinely make capital expenditures to enhance our business. We classify our capital expenditures into maintenance and technology, enhancements to existing properties, and other. We have been, and will continue to be, disciplined with respect to our capital spending, taking into account our cash flows from operations.
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
| Maintenance and technology | $ | 82 | | | $ | 61 | |
| Enhancements to existing properties | 52 | | | 75 | |
| Other | — | | | 6 | |
| Total capital expenditures | $ | 134 | | | $ | 142 | |
The decrease in capital expenditures is primarily driven by renovation spend at certain owned hotels in 2022, partially offset by renovations of a recently acquired property in 2023 and increased maintenance and technology spend. Total capital expenditures for both the nine months ended September 30, 2023 and September 30, 2022 include $20 million related to ALG. Our capital expenditures continue to be below pre-COVID-19 pandemic levels, primarily as a result of our net dispositions of owned assets.
Senior Notes
The table below sets forth the outstanding principal balance of our Senior Notes at September 30, 2023, as described in Part I, Item 1 "Financial Statements—Note 9 to our Condensed Consolidated Financial Statements." Interest on the Senior Notes is payable semi-annually.
| | | | | |
| Outstanding principal amount |
| |
| $750 million senior unsecured notes maturing in 2024—1.800% | $ | 746 | |
| $450 million senior unsecured notes maturing in 2025—5.375% | 450 | |
| $400 million senior unsecured notes maturing in 2026—4.850% | 400 | |
| $600 million senior unsecured notes maturing in 2027—5.750% | 600 | |
| $400 million senior unsecured notes maturing in 2028—4.375% | 399 | |
| $450 million senior unsecured notes maturing in 2030—5.750% | 440 | |
| Total Senior Notes | $ | 3,035 | |
We are in compliance with all applicable covenants under the indenture governing our Senior Notes at September 30, 2023.
Revolving Credit Facility
The revolving credit facility is intended to provide financing for working capital and general corporate purposes, including commercial paper backup and permitted investments and acquisitions. At both September 30, 2023 and December 31, 2022, we had no balance outstanding. See Part I, Item 1 "Financial Statements—Note 9 to our Condensed Consolidated Financial Statements."
We are in compliance with all applicable covenants under the revolving credit facility at September 30, 2023.
Letters of Credit
We issue letters of credit either under the revolving credit facility or directly with financial institutions. We had $256 million and $263 million in letters of credit issued directly with financial institutions outstanding at September 30, 2023 and December 31, 2022, respectively. At September 30, 2023, these letters of credit, which mature on various dates through 2024, had weighted-average fees of approximately 159 basis points. See Part I, Item 1 "Financial Statements—Note 12 to our Condensed Consolidated Financial Statements."
Critical Accounting Policies and Estimates
Preparing financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. We have disclosed those estimates that we believe are critical and require complex judgment in their application in our 2022 Form 10-K, with an additional consideration below.
Contingent Consideration
Contingent consideration payable arising from acquisitions is recorded at fair value as a liability on the acquisition date and remeasured at each reporting date. Changes in fair value are recognized in other income (loss), net on our condensed consolidated statements of income. In order to estimate the fair value, we generally utilize a Monte Carlo simulation to model the probability of possible outcomes. Changes to the significant assumptions or factors used to determine fair value, in particular, assumptions related to the selection of discount rates, probabilities of achieving the contractual milestones, and timing of payments, could affect the fair value measurement upon acquisition and each reporting period thereafter.
Contingent consideration receivable arising from dispositions is recorded at fair value as an asset upon sale. Changes in the carrying value are recognized in gains (losses) on sales of real estate and other on our condensed consolidated statements of income when realizable. In order to estimate the fair value, we generally utilize a Monte Carlo simulation or a probability-based weighting approach to model possible outcomes. Changes to the significant assumptions or factors used to determine fair value, in particular, assumptions related to the selection of discount rates, probabilities of accomplishing the contractual objectives, operating results, and timing of payments, could affect the fair value measurement upon sale.
See Part I, Item 1, "Financial Statements—Note 6 to our Condensed Consolidated Financial Statements."