Hyatt Hotels Corp

Good morning and welcome to the Hyatt fourth quarter and full year 2021 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again press star one. As a reminder, this conference call is being recorded. I would now like to turn the call over to Noel Hoppe, Senior Vice President, Investor Relations. Thank you. Please go ahead.

Thank you, Rob. Good morning, everyone, and thank you for joining us for Hyatt's fourth quarter and full year 2021 earnings conference call. Joining me on today's call are Mark Hoplamazian, Hyatt's President and Chief Executive Officer, and Joan Bottarini, Hyatt's Chief Financial Officer. Before we get started, I'd like to remind everyone that our comments today will include forward-looking statements under federal securities law. These statements are subject to numerous risks and uncertainties, as described in our annual report on Form 10-K, quarterly reports on Form 10-Q, and other SEC filings. These risks could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued yesterday, along with the comments on this call, are made only as of today and will not be updated as actual events unfold. In addition, you can find a reconciliation of non-GAAP financial measures referred to in today's remarks on our website at hyatt.com under the financial reporting section of our investor relations link and in yesterday's earnings release. Lastly, you'll note that we've provided a slide presentation on our investor relations website and on our form 8K filed yesterday that will supplement our discussion today. We will reference certain slides during our remarks. Today's remarks will provide details on new disclosures as this is the first quarter reporting Apple Leisure Group results as part of Hyatt. As always, we will provide as much time as possible for Q&A and will be available after the call for follow-up questions. An archive of this call will be available on our website for 90 days. And with that, I'll turn the call over to Mark.

Thanks, Noah. Good morning, everybody, and thank you for joining us today for our 2021 fourth quarter and full year earnings conference call. I'd like to begin today by expressing my deepest gratitude to every member of the Hyatt family. The last two years have been the most challenging this industry has ever faced, beginning with an unprecedented level of disruption in 2020, followed by a rapid but very uneven recovery in 2021. We've successfully adapted to this dynamic environment by getting closer to our best customers and World of Hyatt members, even as we quickly adapted and discovered new sources of demand, all while maintaining an unrelenting focus on our purpose. to care for people so they can be their best. I'm very proud of the way the Hyde family has responded and continuously adapts to an ever-changing environment. We have not only successfully navigated the pandemic to date, we've emerged in a position of tremendous strength. As I reflect on this past year, 2021 was the most transformative since Hyde went public. We're fundamentally stronger and better positioned for several reasons. First, we completed the acquisition about the leader group that I will refer to as ALG, the biggest acquisition in the history of Hyatt. ALG was entirely on strategy for us. ALG focuses on the high end traveler. It nearly doubles our resort offerings. It significantly expands our presence in Europe. And most importantly, it is an asset life and growing platform with great momentum that significantly increases our mix of EBITDA driven by highly resilient leisure demand. A second transformative event in 2021 is that we realized approximately $630 million of gross proceeds from owned hotel dispositions, leading to the completion of our $1.5 billion commitment ahead of schedule. And we launched a new $2 billion asset disposition commitment. We expect high to reach 80% fee-based earnings by the end of 2024, further creating long-term shareholder value. Third, we had another year of industry-leading net rooms growth and reached a new record for rooms in our pipeline. Lastly, and very importantly, we had an exceptional year operating with excellence, as demonstrated by the significant advancements in key metrics that drive owner preference, namely rep part index, direct channel revenue mix, number of world of hype members, and owner satisfaction sentiment. They all outperformed internal expectations and exceeded 2019 levels in every one of these dimensions. Given all that we accomplished in 2021 and the momentum we have built, I remain very optimistic about this year. Despite Omicron having some impact on performance early on, we've seen demand remain resilient with an unwavering desire to travel and connect from leisure and business travelers alike. Looking forward, I'm thrilled that Apple Leisure Group has expanded our portfolio by 100 resorts as of today. The response from guests, owners, and colleagues continues to be exceptional, and key metrics that drive performance are pacing well ahead of our expectations. Let me share some ALG highlights with you. First, net package rev par at AMR Collection Hotels over the back half of 2021 was above 2019 levels for comparable properties. Second, surging demand at AMR Collection Hotels translated into a record level of guests becoming members of AMR's unlimited vacation club referred to as UBC. Approximately 28,000 new contracts, including upgrades, were signed in 2021, a new record for the company. Third, the ALG vacations business improved profitability and margins through robust business and technology optimization that maturely advanced the quality of revenue and service provided. All this activity translated into a 2021 financial result for ALG that was 50% ahead of our underwriting expectations for the year. and serves as the basis for our optimism on where the business is headed. Looking at the two months of results for ALG as part of Hyatt, the segment contributed $4 million in adjusted EBITDA and generated approximately $40 million of operating cash flow, excluding the vacations business. the vacations business experiences seasonal net working capital fluctuations that are, at times, material. It's important to note that the large difference between cash flow and adjusted EBITDA is primarily due to the timing of the recognition of gap revenue and gap expense for UBC memberships. When assessing ALG performance, it's critical to include the net change in deferred revenue and expense, which we call net deferrals, and the change in net finance contracts. Joan will expand on these elements in a moment, and we have further described these factors in the earnings release and supplemental presentation found on our website. During the two-month period, in addition to ALG's $4 million contribution to adjusted EBITDA, net deferrals increased $19 million, and net finance contracts increased $8 million. We assess financial performance and base our incentive compensation program for our colleagues on the sum of these three items, adjusted EBITDA, which was $112 million in the fourth quarter, net deferrals, which was $19 million in the fourth quarter, and net finance contracts, which was $8 million in the quarter. This sum aligns with the economic value creation of the business, tracks more closely with the cash flow generation of the business, and provides more meaningful period-to-period comparisons. Looking to 2022, we're excited about building the momentum that we see ahead of us. Despite the challenging environment in January, net package REVPAR for comparable ALG resorts in the Americas was 85% of 2019 levels. Further, as we look at gross package revenue booked for future periods, it accelerated from approximately 93% of 2019 levels in January to more than 135% of 2019 levels month to date through mid-February. Our strong positive sentiment is also bolstered by increased airlift capacity, which is up 22% in Cancun, in the first quarter with capacity originating from the United States of nearly 50%. Lastly, I want to briefly touch on the significant progress we've made integrating ALG in the two months since acquiring the company. Our cultural similarities have allowed us to drive value-creating initiatives collaboratively and very quickly, including aligning our development teams to collaborate on new leads and deals across regions. Leveraging Hyatt's terms with OTAs and third parties to improve the cost of distribution for ALG owners. Identifying opportunities for talent mobility across brand organizations. And lastly, planning to expand our World of Hyatt member benefits for members staying at AMAR collection hotels starting this summer in the Americas with Europe to follow. We've achieved significant progress in a short amount of time with many more milestones to come. We're thrilled with the benefits we will deliver in the near term for our colleagues, guests, and owners, and continue to develop areas of opportunity to drive value into the future. Turning to the latest business trends for our legacy Hyatt business, comparable system-wide rep part continues to recover at an encouraging pace, reaching 74% of 2019 levels in the fourth quarter as compared to less than 70% in the third quarter. We're encouraged that rates remain only slightly down compared to 2019, with the REVPAR differential almost entirely driven by lower levels of midweek occupancy. The strong leisure transient demand we've been experiencing shows no signs of dissipating. Leisure transient REVPAR reached 2% above 2019 levels on a system-wide basis in the fourth quarter, despite travel restrictions that remained in place for many countries. We are also encouraged by the improvement in group revenue in the fourth quarter, which improved 18% from the third quarter and actualized at nearly 50% of 2019 levels, with the month of December eclipsing 72% of 2019 levels. It's remarkable that our America's full-service managed hotels had more revenue from groups that booked and stayed in the fourth quarter as compared to the same period in 2019. This just speaks to the pent-up demand that exists to convene at our hotels, and we remain confident this trend will continue into 2022. As for business transient, demand also continues to strengthen, with revenues improving to approximately 44% of 2019 levels in the fourth quarter compared to 38% of 2019 levels in the third quarter on a system-wide basis. Small and medium enterprise business travel continues to lead the recovery, And we also saw steady progress with our larger group accounts, which were closer to 40% of 2019 levels for the quarter. We expect these levels to continue to improve as more employees return to the office and travel velocity increases. From a geographic perspective, the United States experienced notable momentum in the fourth quarter, improving from just over 70% of 2019 levels in October to almost 95% in December. primarily driven by outsized leisure demand. Additionally, we are experiencing a more diverse recovery in many parts of the world. We had record performance in the Middle East in the fourth quarter, primarily driven by demand from Expo 2020 in Dubai. We're also thrilled to see regions that had only seen a limited RETPAR recovery start to progress more meaningfully in the fourth quarter, including India, which reached nearly 90% of 2019 RevPar levels in December, and Southeast Asia, where we saw the first period of notable RevPar acceleration since the pandemic began, all due to easing travel restrictions. As we look into 2022, January lagged the RevPar levels we experienced in December, primarily driven by a negative impact from the Omicron variant. System-wide RevPar in January finished at 63%, of 2019 levels as compared to 84% in December. For America's managed hotels, it's notable that almost two-thirds of group cancellations for 2022 have been limited to and exclusively for the months of January and February, with nearly 60% of those groups rebooking for a date later this year. Bookings for March and onward continue to grow at a strong pace. In fact, Gross new group bookings in January for events that will be held this year were up 14% versus the same comparable period in 2019. And our full year group pace, which includes the headwinds in January, is at 77% of 2019 levels with 20% more tentative business than at this time in 2019. Overall, we're seeing strong booking activity across the majority of our key geographic areas for both group and transient and anticipate a significant red part acceleration in the weeks and months ahead. Turning to growth, I'm pleased to report that we have a 99 legacy Hyatt hotels in 2021, a new record which contributed to our legacy Hyatt net rooms growth of 6.1%. When factoring in the 32,000 rooms from our acquisition of ALG, our total high net rooms growth jumps to 19.5% for the year. In our supplemental investor presentation, we highlight on slide nine how our strong organic growth paired with the recent acquisitions of Two Roads Hospitality and ALG have truly transformed the quality of our portfolio with a much greater mix of luxury, lifestyle, and resort offerings in a very short period of time. Our total room count grew by nearly 100,000 rooms, just over 53% growth in only four years. What's particularly important is the composition of the growth. As we highlight on slide 10 of the supplemental investor presentation, if you compare our portfolio today to our portfolio four years ago, you'll note that we have doubled our number of luxury rooms. We have tripled the number of lifestyle rooms, and we have tripled the number of resort rooms. Our growth has resulted in notable gains in global market share in key areas. For example, our portfolio now represents 18% of global luxury branded rooms in resort locations, the largest in the world. 13% of global luxury branded rooms across all locations, which makes us the second largest in the world. I am very proud to share that over 40% of our global portfolio is either a luxury hotel, a lifestyle hotel, or a resort, or a combination thereof, providing a truly differentiated portfolio, both in terms of quality and variety. Our World of Hyatt members have taken notice. The areas in which we have expanded our portfolio are precisely where demand is most pronounced for our guests, particularly our most loyal members. The World of Hyatt program has nearly tripled in the number of members since 2017 to over 30 million members today. We anticipate we'll continue to see significant growth of new members as we continue our industry-leading growth and introduce the World of Hyatt program to millions of ALG guests, providing incremental benefit to AMR owners. The benefit to owners of World of Hyatt expansion is compelling. as the total cost of distribution for World of Hyatt members booking directly through Hyatt's channels is maturely lower than the cost of third-party channels. We're thrilled with the transformation and the mix of the rooms in our portfolio open today, and we've also significantly expanded our pipeline over this timeframe. In the fourth quarter, our legacy Hyatt Hotels pipeline grew to 104,000 rooms. additionally we added 9 000 rooms through the alg acquisition resulting in a total pipeline of 113 000 rooms a 12 expansion over last year and a more than 60 expansion since 2017. finally i want to provide a brief update on transactions before turning it over to john as i mentioned we have a very active year of 2021 realizing $630 million of gross proceeds from owned asset sales. In addition to the sales of wholly owned assets, we had a very active quarter in our joint venture portfolio. In the fourth quarter alone, we sold our joint venture ownership interests in five hotels, four of them being select service properties, for an average price of $380,000 per room, resulting in $83 million of net proceeds to HIAS. and we retained a long-term management or franchise contract for each hotel. In addition to the activity outlined above, I'm pleased to announce that we are in advanced stages for the disposition of two other wholly-owned hotels for an aggregate amount of approximately $270 million, implying a multiple of approximately 15 times 2019 EBITDA levels. Should we successfully close these two transactions, they will mark early and solid progress toward the $2 billion asset sell-down commitment we announced in August. We look forward to updating you on the progression of these sales and future plans relative to our sell-down program. I'll conclude my prepared remarks this morning by reiterating my gratitude to the Hive family and enthusiasm for the direction we're headed. We made significant progress in multiple areas in 2021, and Hyatt is a much stronger and more agile company today. I'll now turn it over to Joan to provide additional details on our operating results. Joan, over to you.