Hyatt Hotels Corp

Good morning and welcome to the Hyatt Second Quarter 2022 Earnings Call. As a reminder, this conference call is being recorded. I would now like to turn the call over to Noah Hoppe, Senior Vice President, Investor Relations. Please go ahead.

Thank you, Operator. Good morning, everyone, and thank you for joining us for Hyatt's Second Quarter 2022 Earnings Conference Call. Joining me on today's call are Mark Hoplamazian, Hyatt's President and Chief Executive Officer, and Joan Bottarini, highest chief financial officer. Before we get started, I would like to remind everyone that our comments today will include forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K, quarterly reports on Form 10-Q, and other SEC filings. These risks could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issue today along with the comments on this call, are made only as of today and will not be updated as actual events unfold. In addition, you can find a reconciliation of non-GAAP financial measures referred to in today's remarks on our website at hyatt.com, under the financial reporting section of our investor relations link, and in this morning's earnings release. An archive on this call will be available on our website for 90 days. And with that, I'll turn the call over to Mark. Thank you, Noah. Good morning, and thank you to everyone for joining us today. This morning, we reported our second quarter 2022 earnings results, further demonstrating the power of highest transformation into a fundamentally stronger and uniquely positioned company. The attributes that define our differentiated model include, first, our focus on the high-end traveler. Second, our earnings concentration in the Americas. Third, a majority of revenues derived from leisure travel.

Fourth, relatively higher exposure to group business.

Fifth, strong positive operating leverage, especially in our owned and leased hotel performance. And finally, industry-leading net range growth over the past five years. In this same time period, Hyatt has been transformed and, we believe, is well-positioned to outperform other multi-brand companies over the years to come. Our second quarter results reflect superior performance across all of our business lines derived entirely from the attributes I just mentioned that define our positioning. We anticipated a strong recovery in the second quarter, and I'm pleased to report results that exceeded our expectations. We had a record quarter as measured by adjusted EBITDA plus net deferrals and net finance contracts. The strongest in the company's history by a significant margin, driven by a record level of leisure demand, along with rapidly recovering group and business transient demand. Operable system-wide rev par in the second quarter exceeded 2019 levels when excluding Greater China. In addition, ALG net package rev par at our all-inclusive properties in the Americas managed by ALG was ahead of 2019 levels by 17% Adjusted EBITDA for legacy high has also set a new record after adjusting for currency and the net impact of transactions. Looking ahead, our outlook remains optimistic for a number of reasons. First, it is notable our second quarter results were achieved while group and business transient are still in a state of recovery. Demand has yet to normalize with system-wide occupancy still down more than 1,000 basis points to 2019 levels in the second quarter, a gap entirely driven by lower levels of group and business transient demand. Momentum continues to build in these two areas, and conversations with customers along with strong forward booking data provide confidence that occupancy will recover more fully in the months ahead. Second, while we are encouraged by the RevPAR recovery thus far, it's important to highlight the significant gap that exists when comparing RevPAR growth to the broader economic expansion that has occurred over the past three years. Traditional drivers of our business, such as consumer discretionary spend and non-residential fixed investment, have expanded in the mid-teens percentage range or higher, while our rep part in the United States only just surpassed 2019 levels in June and on a system-wide basis in July. The rest part recovery still significantly lags the broader economic measures and only with further recovery will travel spend regain its pre-pandemic share of wallet. We expect the gap to narrow as consumers pivot back to prioritizing spending on services and businesses resume travel more fully. Third, we believe our customer base and higher end change scale concentration will remain resilient in the face of potential macroeconomic pressures. The variety of data we monitor, from forward bookings to consumer sentiment surveys, indicate the high-end customers maintaining resilience and continues to prioritize travel. This is consistent with consumer behavior for higher-income groups during other periods of macroeconomic uncertainty. When looking at comparable system-wide rep part in our luxury brands in the Americas and EMEA and Southwest Asia region, We were up 22% in the second quarter and accelerated up to 28% in July when compared to 2019, respectively. This is clear evidence of a differentiator and value driver for Hyatt as compared with the broader industry, especially during variable macroeconomic conditions. Our industry-leading net roots growth has yet to be fully reflected in our financial results. Since the start of 2019, nearly 30% of our organic growth has come through openings in Asia Pacific. Even with this strong level of growth, our Asia Pacific segment contributed only $6 million of adjusted EBITDA in the second quarter of 2022, as compared to $20 million in the second quarter of 2019. The region has grown by over 13,000 rooms, or 35%. We are seeing rev part momentum in the Asia Pacific and expect fees from the region to serve as a tailwind as it continues to recover in the months and quarters ahead. Lastly, our loyalty program, World of Hyatt, an overall commercial services engine, is a source of tremendous strength. The number of World of Hyatt members has grown by 65% over the past three years, which is driving a record level of direct bookings, especially through our digital channels. The performance of our America's full-service properties in the second quarter is a great demonstration of our progress, with World of Hyatt members accounting for nearly half of room nights and revenues booked directly through Hyatt channels reaching nearly 74%. both improving significantly over the same period in 2019. Our brands are resonating with customers, and we're delivering great results through expanded market share and lower distribution costs for our hotel owners. We're now a more agile organization with an accelerating proportion of earnings coming from our fee-based business. We believe the key attributes of Hyatt's business in 2022 and looking forward better positions us than ever before to continue to deliver strong results as we adapt to evolving macro factors we may face in the future. Now, let's dive a bit deeper into the latest trends from the quarter. First, starting with ALG, the segment significantly exceeded our expectations once again this quarter. To provide context, through the first six months of 2022, ALG has already surpassed its full year 2019 economic performance. Net package REVPAR for properties managed by ALG and the Americas in both 2019 and 2022 had a strong recovery, improving from down 8% in the first quarter to up 17% in the second quarter relative to 2019. Further, non-package revenue had a significant positive impact on results as well, with a 26% increase when compared to 2019, a testament the compelling programming at ALG's resorts, and the value that our high-end customer base places on accessing great additional experiences while on property. The strong debt package rep part environment also contributed to a record number of new unlimited vacation club contract signings and another terrific quarter for the ALG vacation distribution business. And it's worth acknowledging these strong results were achieved when travel alternatives such as European destinations and cruise lines, had significantly more availability than in prior periods. Turning to integration efforts, May 9th marked the official date when guests could start to earn and redeem World of Hive points at ALG resort properties in the Americas. It is still early, but we're thrilled with the progress so far. We've enrolled over 41,000 new World of Hive members at participating ALG resort properties with a rate of enrollment that is significantly higher than what we typically see from newly opened Hyatt properties. We're also very encouraged by the level of spend of our World of Hyatt members, which is materially outpacing non-members. We expect the integration of World of Hyatt with ALG's European properties to be complete by the end of the year, and we'll provide updates of our progress there. Turning to the latest trends in our legacy Hyatt business, The pace of recovery also exceeded expectations, with comparable system-wide rev part improving from down 25% to 2019 levels in the first quarter to down only 5% in the second quarter. Excluding greater tandem, system-wide rev part finished ahead of 2019 in the second quarter, demonstrating the broadening demand for our hotels globally now that travel restrictions have beneath. From a geographic perspective, REVPAR has continued to recover in many parts of the world. Looking at the Americas, REVPAR was up 3% in 2019 in the second quarter, driven by strength in our lingerie brands, which actualized 20% ahead of 2019 levels, driven by rate growth of 27%. This is particularly meaningful, given that we've doubled the number of lingerie rooms in our system over the past five years. Many urban markets improved rapidly as the quarter progressed, driven by improved group and business transient demand. In the United States, REVPAR in urban locations was down 8% versus 2019 in the second quarter and has steadily shown month-to-month improvements, being down only 4% in June and down only 2% in July as compared to 2019. In India and Southwest Asia, the region saw a travel resurgence with REVPAR growth of 12% 2019 in the second quarter. Cross-border travel was notably strong in the region with travelers from North America contributing 17% of rooms revenue consistent with the contribution during the same period of 2019. The overall strength of recovery in the region can be attributed to solid growth in leisure, an increase in business transient large events, all contributing to stronger rates. Meanwhile, Repar in Asia Pacific remained at depressed levels, finishing down 48% versus 2019 in the second quarter, driven by Greater China, which was down 62% due to lockdowns in certain key markets. Despite the difficulties in Greater China, Repar in the Asia Pacific region improved throughout the quarter when compared to 2019, from down 58% in April to down 35% in June. We remain confident in Asia Pacific's path to recovery with the continued ease of travel restrictions and improvement in airlifts. We're particularly encouraged to see the recovery momentum accelerate in July, with RevPAR down less than 20% versus 2019, with a very rapid improvement in Greater China, which was down only 21 percent in July, a significant improvement from being down 64 percent just two months prior. From a segmentation perspective, we experienced another record quarter of leisure transient revenue, up 19 percent to 2019 on a comparable system-wide basis with a contribution of 54 percent of total room revenue for the quarter. While resorts continue to experience strong results, the leisure recovery broadened with notable growth in urban markets as cities more fully reopened across the globe. Group room revenue showed meaningful strength, building on the momentum from the first quarter, finishing down only 11% to 2019 in the second quarter, with steady month-to-month improvement from down 14% in April to down only 7% in June. We continue to see significant short-term group demand, primarily from corporations, with gross group bookings in the second quarter for state that will occur this year at 45% above 2019 levels for America's full-service managed properties. It was this unprecedented level of short-term group demand that narrowed our case deficit as we progressed through the quarter. We entered the second quarter with a group-based deficit of 16 percent to 2019, but actualized down only 11 percent as a result of strong short-term booking behavior. This trend is continuing with an acceleration in booking activity in July for 2023. As for business transient, we're very encouraged by the recovery momentum as demand continues to broaden. System-wide, business transient was down 58 percent to 2019 in the first quarter, and improved to down 38% in the second quarter, with June down only 31%. We experienced encouraging performance in certain gateway cities such as New York City, up 5% to 2019, with other major cities showing strength driven by the relaxing of company travel restrictions. The recovery within our large national accounts is particularly encouraging, improving from 54% recovered in April to 71 percent recovered in June. And our top 10 customers have recovered by more than 80 percent. As more employees return to office, restrictions are eased, and cross-border travel more fully resumes, we anticipate Business Transient to continue to strengthen in the months ahead.

Turning to growth, we had a strong second quarter of net rooms expansion.

We opened over 5,500 rooms contributing approximately 4,600 net rooms to our system. Over half of the rooms we opened during the quarter were resorts and included incredible additions to the portfolio, such as the Alila Maldives and the Secrets Moshe outside of Playa del Carmen. Additionally, we opened our first caption by Hyatt on the famed Beale Street in Memphis. We are excited about this innovative lifestyle select service brand and we are thrilled to have the first one open and operating. We look forward to many more to come. Our total Net Rooms growth is 19% over the trailing 12-month period, which represents an increase of 40 basis points as compared to the 18.6% of Net Rooms growth reported in the first quarter. The accelerated growth in our based business during the second quarter was heavily driven by our ALG resorts. It's notable that ALG has already achieved net rooms growth of 10% since the start of the year, which is well ahead of the approximately 10% growth target we anticipated for the full year. As for the legacy Hyatt portfolio, net room growth is 4.6% over the trailing 12 month period as opening activity has slowed in part by a lower level of openings in Greater China due to lockdowns impacting the rate of construction. However, we have exciting hotel openings scheduled over the back half of the year and compelling conversion opportunities under negotiation. As a result, we expect net rooms growth for the full year to be greater than 6%. Moving to real estate transactions, as previously disclosed, We've had a very active first half of the year, which resulted in gross proceeds from asset sales of $812 million. We're currently marketing two owned hotels for sale and are pleased with the progress we are making. We're also pleased to announce that on August 3rd, we acquired the Hotel Irvine in Irvine, California, a hotel we know very well, as it was previously the higher regency of Irvine for over 20 years. before exiting our system several years ago. We purchased the 541-room hotel for $135 million, securing our brand presence in a highly sought-after location where we are underrepresented. As in the past, when we look at unique opportunities like this one, we remain highly confident in our ability to unlock value through renovating and repositioning the hotel, while seeking to identify a strategic third-party buyer to be a long-term owner of the asset. I'm proud to share that we recently announced progress made across our ESG platform, World of Care, released our diversity, equity, and inclusion report, and shared our global reporting initiative, all of which demonstrated how Hyatt is advancing care for the planet, people, and responsible business. We are proud that our World of Care platform was named 2022 ESG program of the year by radio communications. I'd like to share a few specific key ESG highlights. First, science-based targets were approved by the Science-Based Targets Initiative, reflecting our focus on making significant reductions in greenhouse gas emissions. Second, I'm proud to share that we have increased representation across several groups, including people of color and women, in leadership positions across our workforce. Lastly, with a focus on improving diverse vendor representation across our supply chain, Hyatt welcomes 220 new Black-owned businesses to participate as suppliers to our hotels in the Americas. I would like to thank all of the members of the Hyatt family who bring World of Care to life every day with creativity and passion. We look forward to continuing to share our progress, challenges, and solutions that are advancing us toward our ESG goals. I'll conclude my prepared remarks this morning by saying that we're very pleased with the strong results we delivered this quarter and maintain our optimism as we look toward the remainder of this year and into 2023. I'll now turn it over to Joan to provide additional details on our operating results. Joan, over to you.

Thanks, Mark, and good morning, everyone. My commentary today will cover consolidated financial results key drivers of our strong performance and expectations I can share for the remainder of 2022. This morning, we reported second quarter net income attributable to Hyatt of $206 million and diluted earnings per share of $1.85, with our results favorably impacted by gains on the sale of real estate of $251 million, the acquisition of ALG, and significantly improved operating performance. Adjusted EBITDA for the quarter was $255 million. Additionally, net deferrals were $25 million and net demands contracts were $15 million. As Mark mentioned, this was a record quarter. We experienced a record level of leisure demand and a rapid recovery in group and business transient demand. We translated this demand strong rate realization, fee growth, and margin expansion through excellent execution. Adjusted EBITDA for Hyatt, excluding ALG, was $201 million for the quarter, which is approximately 13% higher than 2019, adjusted for currency and the net impact of transactions. The improved performance of the legacy Hyatt business reflects strength in our core business and new fees generated from our industry-leading growth. We reported a record level of total management franchise and other fees, 27% higher than any other quarter in the company's history, and up 30% to 2019 in the second quarter, driven by RevPAR expansion and industry-leading networks growth. Comparable RevPAR growth was 3% to 2019 in the Americas and 12% to 2019 in EME and Southwest Asia in the second quarter with our Asia-Pacific region trailing. The Americas and EME Southwest Asia lodging segments combined resulted in approximately 11% expansion in fees in 2019. Turning to our owned and leased portfolio, the segment generated $99 million in adjusted EBITDA for the quarter, down 14% to 2019 on a reported basis, while being up 20% to 2019 when adjusted for currency and the net impact of transactions. Comparable owned and leased margins improved to 31.9% in the quarter, up 800 basis points to 2019 levels for the same set of properties, reflecting another quarter of very strong operational execution and an increase in average daily rates of 15% in 2019. International Comparable owned and leased properties accounted for $9 million of adjusted EBITDA growth to 2019, driven by strong results in our European properties, namely the Park Hyatt Paris and the Park Hyatt Zurich. Additionally, our Mirabal portfolio continued to perform exceptionally well, generating an $8 million increase in adjusted EBITDA compared to 2019. Looking ahead to the third quarter, The rate of RevPar recovery strengthened in July, benefiting from strong summer leisure travel and group demand, with system-wide RevPar in July finishing 5% ahead of 2019 and ADR growth of 17%, marking the first month in which system-wide RevPar exceeded 2019 levels. Our comparable owned and leased hotel RevPar in July was up 12%, with ADR growth of 18%. On a system-wide basis, leisure revenue maintained its strength and group revenue slightly exceeded 2019 levels in July. A remarkable milestone considering group revenue was down more than 40% in the first quarter of this year and 11% in the second quarter. Looking into August and onward, total transient bookings remained strong. with comparable transient revenue at approximately 1% higher than 2019 for the remainder of this year, and 4% higher, excluding Greater China. We also continue to see strong short-term demand for group, with short-term group bookings at approximately 40% above 2019 levels for our Americas full-service managed property. Overall, the trends and trajectory are very encouraging and consistent. Demand is broadening, geographically and by segment. We have confidence that the recovery and demand will continue into the latter half of this year, and we're particularly encouraged by the momentum we're seeing in Asia Pacific. Turning to ALG, the performance of the segment once again significantly exceeded our expectations. Adjusted EBITDA for the quarter was $54 million, net deferrals were $25 million, and net finance contracts were $15 million. As a reminder, critical to assess performance of some of these three items, adjusted EBITDA, net deferrals, and net finance contracts, due to gap revenue and expense recognition requirements related to ALG's Unlimited Vacation Club business. We've provided a table on page three of the schedules in the earnings release for reference on net deferrals and net finance contracts, as well as a supplemental presentation for modeling ALG's contribution to HIAS. I'll take a moment to cover three areas that drove ALG's financial results. First, net package rev par for the same set of hotels in the Americas was up 17% to 2019 during the quarter, reflecting strong net package ADR, which was up 19% in the second quarter to 2019. New hotels added to the ALG resort portfolio and significantly improved performance drove $36 million in total fee revenue in the quarter. Incentive fees were notably strong as record average rates fueled expanding operating margin growth. Second, approximately 8,500 membership contracts were signed for ALG's Unlimited Vacation Club in the quarter, the primary driver of performance for other revenues, net deferrals, and net finance contracts. This level of sales 2019 by 20%, driven by sales of memberships at higher tiers. UBC now has 125,000 active members, exceeding 2019 by 30%. Third, the ALG Vacations business realized strong results with strong unit pricing, increased airlift, and consumer preference for all-inclusive luxury. In the quarter, ALG vacations reported 744,000 guest departures, which drove $256 million of distribution and destination management revenue and $206 million of expense in the quarter, reflecting approximately 20% margins on the business, significantly above 2019. The strong margin levels were aided by strong seasonal demand. And on a full-year basis, we anticipate margins for the vacation business to be in the mid to high teens. In summary, ALG posted another quarter of very strong financial results. We remain optimistic as we look into the remainder of the year for several reasons, including the strength of demand, in which we see no sign of softening, travel restrictions that have been lifted in key ALG markets, improved airlift that is approximately 24% above 2019 levels for key America's destinations, and a favorable pricing environment. We'd also reiterate that ALD is seasonal, and while we anticipate the growth rate relative to historical periods to remain strong, the EBITDA contribution of the segment is expected to moderate relative to what was generated in the first half of the year as we enter seasonal periods of lower leisure demand. and also make investments in the second half of 2022 targeted toward future growth opportunities. I'd also like to provide an update on our strong cash and liquidity position. As of June 30th, our total liquidity includes nearly $2 billion of cash, cash equivalents, and short-term investments, up approximately $650 million from the prior quarter, driven by cash flow from operations and net proceeds from asset sales. The increase in our liquidity is net of approximately $180 million of debt reduction, primarily related to the Grand Hyatt San Antonio sale and approximately $100 million in share repurchases during the quarter. In addition to our cash position, we maintain approximately $1.5 billion in borrowing capacity on our revolving credit facility. We entered into a new credit agreement during the second quarter with the maturity of May of 2027. As of June 30th, we have no debt maturities in the next 12 months. However, we will have an option beginning in the fourth quarter of 2022 to pay down a portion or all of the notes issued in the fourth quarter of 2021. And we expect to pay down a significant portion of these notes in keeping with our commitment to an investment grade profile. Finally, I'd like to make a few comments regarding our 2022 outlook. While we acknowledge that long-term visibility remains challenging, especially in certain markets where travel restrictions remain in place, we expect full-year 2022 system-wide rev par to grow between 55% and 60% to 2021, and to be down between 9% and 4% to 2019. This implies that RevPAR over the latter half of the year will be in the same approximate range as 2019 for the same set of comparable hotels adjusted for currency. Additionally, we continue to expect adjusted SG&A to be in the approximate range of $460 to $465 million, excluding any bad debt expense, and continue to expect capital expenditures to be approximately $210 million. Lastly, turning to Net Room's growth, while we recognize macro factors such as supply chain issues and COVID-related restrictions are impacting the timing of opening, as Mark mentioned, we are particularly encouraged by the volume of conversion opportunities in the second half of 2022 and expect Net Room's growth for the full year to be greater than 6%. I will conclude my prepared remarks by saying that we're very pleased with our second quarter results, which demonstrate the progress we've made on our asset-light transformation and the excellent execution driving core business results by our global property and support team. Our optimism for the future is fueled by our confidence in these teams, as well as the visibility we have to continue momentum in demand. Thank you, and with that, I'll turn it back to our operator for Q&A.

Thank you. Ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad. You may press star 1 again to remove yourself from the queue. One moment please for the first question. The first question comes from the line of Joe Gref with JP Morgan. Please go ahead.

Good morning everybody. Nice results. Mark, I was hoping you could talk a little bit in detail about the environment for divesting hotels right now compared to, you know, buyer appetite and pricing versus six months ago. How wide is the bid ask? To what extent has the buyer universe thinned out or has shifted in buyer characteristics? Thanks, Joe.

I think the primary difference over that period of time has to do with rates and availability of debt for acquisitions and that has a greater impact on private equity than it does on other types of buyers. I would say that we have discovered that that can work in favor of all cash buyers and I think we took advantage of that in being able to be certain with the Irvine company about purchasing Hotel Irvine. I think that was the difference maker in being able to secure that hotel at what we think is a very compelling value. But the certainty of closing was 100% because we were cash fired. So I think that's actually the key issue. I think it's hard to say that it's actually had a direct impact on realized values yet. If a year from now we have interest rates at this or higher levels and availability at lower levels? It might, because you're talking about a chunk of the buyer universe that needs significant leverage to make their numbers work, not playing. We have a number of unique assets remaining in our portfolio of significant value. Things like the High Regency in Orlando, which is really a very uniquely positioned very high-performing hotel. In the midst of the Orange County Convention Center, we have our trophy assets in Europe and the Mirawal portfolio, all of which continue to perform exceedingly well. And the buyer universe for a number of those properties is not really what I would consider the market. So we don't have any particular concerns. We're 1,000% confident we will get to and probably exceed the $2 billion goal that we set for the end of 24.

Great. And then my second question for you guys is with respect to your target for this year to grow net rooms by greater than 6%, obviously ALG is experiencing stronger than expected room growth, as you guys talked about. How do you think about Hyatt legacy managed and franchise footprint growth within that greater than 6% target? Can it accelerate from the 4.6% that you guys achieved in the second quarter? And that's all for me. Yes.

Yes, and that is our expectation. I would say that the proportion of our growth year-to-date and prospectively that is coming from conversions is higher. than our historical levels. Historically, we were in the mid-20s, and I think we're more than 1,000 basis points above that now, year-to-date, and that's a gift that's going to keep on giving. So our outlook does include significant conversion activity that's underway. The big issues with respect to Hyatt Legacy growth, rather Legacy Hyatt growth, has to do with China, which really took a full three to four-month break. It was a hard break, like constructions shut down and completion rates stopped. Up until the lockdowns, 51% or thereabouts of all of the hotels that we set out at the beginning of the year that we thought was open, opened on time. And of the remainder, a significant portion of the gas that opened up in the second quarter has come from China and to a certain extent from COVID and supply chain. So those are the key issues, but they're temporal. When we see the kind of recovery that we talked about in China in terms of the actual rep part recovery into July, down, you know, basically 80% recovered in July, up from 40% or 35% recovered in April, that's a huge change that happened very rapidly. So we know that there's going to be continued ups and downs in China because there are other markets that will likely go through constraints and restrictions. But overall, whether we open our full measure of scheduled to open hotels in China this year or into the first quarter of next year, it's less important to us than knowing that we've got that backlog. which we do, but we're really confident about our greater than 6% outlook for the year, primarily based on other substitutions that we've been able to get abreast of.

Our next question comes from the line of Sean Kelly with Bank of America. Please go ahead.

Hi. Good morning, everyone. Thanks for taking my question. I just want to dig into ALG a little bit more. We're obviously starting to get a lot of questions about the leisure business and wondering not just how strong it is, but how we're going to be able to repeat the levels of demand that we've experienced so far. I was wondering if you could just help us think about this business line, structural versus cyclical. How much of the growth are we experiencing is due to new rooms added to that system since 2019? growth in the vacation, you know, kind of the unlimited vacation club offering versus, you know, just the rev par piece. I know it's maybe a little bit detailed, but help us think about, you know, kind of those two areas of the business so we get a better sense of, you know, how much of that growth we could keep if demand does normalize a little bit.

Yeah, maybe, Sean, I'll start with a couple of comments about the seasonality question that you raised. Clearly, we saw exceptional demand across all of the leisure-oriented businesses within ALG in the first half of the year. Traditionally, you would find that the latter half of the third quarter and the beginning of the fourth quarter, you see some seasonality just flowing in leisure demand, but we're frankly still learning about the business. And we do see that there's been some tailwinds with respect to the reduction in or the limitations being reduced on travel to the Caribbean and Latin America back into the US. So that provides a tailwind. And we're seeing that the growth that you just mentioned, the new unit growth is actually helping to also fill in some of the areas that may have been a little bit slower. It's a learning process for us. The momentum is exceptionally strong as we look forward into the holiday period. We are up significantly into the festive period and even are seeing some strong momentum into the first quarter of 2023. And then just maybe a comment before I turn to Mark is that on the record levels of fees that we generated in the quarter, ALG contributed about 20% of those fees, and about 50% of that is coming from incentive fees. So ALG contributes a significant portion of incentive fees, and as you mentioned, that with new unit growth, new unit growth will continue to provide a tailwind for us as those hotels that are opening are ramping into the future.

Yeah, so there are a couple of other things that I can just add to that. Growth package revenue in July was something like 74% above the same period in 2019, which is a staggering number. A lot of that is the growth, the actual organic growth in the portfolio. We are more than 50% bigger as an enterprise, as a network, than we were three years ago. The pacing that Joan referenced is quite remarkable. I mean, we're seeing Q3 business on the books at up over 35% and pacing in July for the remainder of the year close to 40% or a bit above that actually relative to 2019. So we're getting both the benefit of the growth of the system And the pacing, those data for all comparable ALG resorts, part of that is being driven also by Europe. Europe was very disrupted last year because the Omicron scare sort of persisted into late in the summer, or sorry, the Delta impacted. So we really didn't get a full season in Europe, and this year we will get really the bulk of the season. But also into the first quarter of next year, Joan mentioned, we're tracking mid-teens increases in ADR year over year with about 25% of the business on the books already for the quarter. So this is not something that's a flash in a pan. And I think there's a misconception that it's all a bunch of volatility. And that's just incorrect. We're seeing actual trend lines that are very clear. And I would say with the increase in lift, which is significant into the key markets in the Americas, we're able to actually get passengers to where we have resorts, which is really important. On the UBC question, our growth model when we purchased the company, the underwriting was to maintain all of the metrics that UBC had historically, meaning the number of guests that we introduced to the UBC product, and also the conversion rates of those who come to investigate and to those who buy. We haven't assumed any major changes in those rates in our projections, so a lot of it is being driven by net range growth. The other thing I would say, though, is that the entirety of our UBC member base only represents 13 percent of our total room rent at ALG, so there's a massive amount of room to grow. And the last thing is on vacations, vacations is fundamentally a completely different business than it was in 2019. They have fundamentally changed the cost model. A lot of machine learning and AI has been applied in the processes that they have. The software platform it runs on is a business that actually enjoys software margins. The destination management company Amstar enjoys very healthy margins and very solid attachment rates of like 75% of all vacation business that's booked. So while we're tracking lower in terms of the total number of passengers that we're moving through vacations, they are to higher margin markets and the margins of the business have, they bear no resemblance to where they were before. As a consequence of that, as we look into the latter half of the year, we do plan to make significant investments behind our B2C platform. So some measure of the SG&A that we will spend in the latter half of the year will be going to building and strengthening our B2C activities and promotional activities with respect to all of our resorts in Europe and in the Americas because we feel we're selling into strangers.

Thank you for all the detail. And maybe just as a follow-up, but just really sticking with the same theme, you know, obviously the business has changed pretty dramatically when we factor in ALG. And when we just think about the enterprise-wide, you know, let's call it EBITDA or operating income, can you help us just think about how typical seasonality should progress, you know, maybe a little bit for modeling purposes just so we can not get too far out over our skis or over our umbrellas?

Yeah, it's a little tough to answer with specificity only because, look, the first half of the year is much stronger than the second half in terms of earnings generation for a business like ALG. Having said that, July, all of the trends that we saw in July have continued, sorry, in the second quarter have continued into July. I just gave you the pacing numbers for the third quarter and the remainder of the year. So I would say that There is seasonality. We remind ourselves that we live in a seasonal business, and the second rule is never forget that rule. So we don't think we'll see the same persistent level of earnings through the remainder of the year. However, I would say we are confident about the back pressure of demand that will persist and I think our job right now is to optimize what we're doing and to pull the world of Hyatt through in a more aggressive way. The beginning of that has been fantastic and I think the result of that is going to be more direct channel, more group because we're starting to sell group into the ALG portfolio and vice versa. We've gotten good references from ALG to the legacy Hyatt portfolio. I would say, yes, the second half will be a lower earnings level, in part also because of some of the investments that I just mentioned. These are not persistent investments that will be every year forevermore. These are very targeted to building out some strength in some certain areas that we believe will accelerate our ability to generate more direct channel across the whole system.

Our next question comes from Michael Bellisario with Baird. Please go ahead.

Thank you. Good morning, everyone. Morning. Morning. Mark, a picture question for you, kind of on next steps for the company. ALG is performing well. You just explained that. Asset sales are progressing. So kind of how do you think about the next drivers if it's not premature to do so? And maybe how do you think about the white space within the portfolio today as it sits?

Well, I think we are really optimally positioned. We've produced remarkable results in the second quarter with 1,000 basis point gap to 2019 occupancy levels, really all of which is group and transient related. While we're getting back to 2019 levels just now, we're ahead of 2019 in July. Group is back to 2019 levels in July. So we're recovering in those areas back to 2019 levels. That sounds great, but the fact is that the backdrop for that is that GDP is up 17% over the last three years. Personal consumption is up 19%. Non-residential fixed investments are up in the high teens. And REVPAR is now just recovered. So if you look at total share of wallow of the consumer, It's not even close to where it was pre-pandemic for travel. And I would say that in times of economic uncertainty, we don't have a crystal ball and don't know if there's going to be any significant pressure in the global economy. There are a lot of countervailing forces. I can tell you that our customer base is rock solid. And all of the forward-looking data that we shared, including The fact that our top 10 customers are 80% recovered in business transient and growing is really great evidence that across our portfolio, we expect to continue to execute, to continue to drive higher loyalty penetration, which is now approaching 50% of our total room revenue, direct channel, which is approaching 75% of our total high channels, that is, of total production, with a concurrent reduction in OTA penetration. And all of that spells great news for our owners. So I would say the coming year and two is about continuing to execute against our plan. And we are going to meet our sell-down requirements And I do want to take a minute on that. So from the beginning of our affirmative sell-down commitment, that is 2017, we have sold $3.7 billion worth of real estate at over 17 times earnings. During that period of time, we also acquired, spent about $3.5 billion on platforms. That is Miraval, Two Roads, and ALG. which have yielded platforms that have significant prospective growth that we created at high single-digit to very low double-digit multiples. So, the value creation in that trade is somehow maybe misconceived. I just wanted to remind everybody that there's a method to how we went about doing this, we wanted to have the capacity to be able to spend $3.5 billion on transformative acquisitions. And by rapidly disposing of the entire portfolio of our real estate and distributing the cash to shareholders puts us in a position in which we're needing to issue new stock at uncertain times. So from my perspective, I think our plan has actually been executed extraordinarily well. As it relates to Irvine, we have demonstrated through Mexico City and the high recency Indian Wells and Ventana, the capacity to acquire, renovate, reposition and sell in some cases in very short order assets. And that's precisely what we plan to do. So if you look back, this hotel went independent in 2014. It was shut down from 2020 to 2022. So our multiple of acquisition, if you look at an independent hotel, unaffiliated in any way, from 2019 levels is about 15 times. But we think we're creating an asset here in the high single digits after a significant renovation program, which could be in the range of $40 million. We haven't finalized the exact budget. But even if you add $40 million to the 135 purchase price, that only gets you to 323,000 a key, which in a market like Irvine is an extraordinary result for a full-service hotel. By the way, over that period of time, all of the office space around the hotel has been filled by companies that show up in our top 10. So this is a market that's dead center for us. It's the center of the bullseye in terms of people that we want to serve more of. So I think that the evolution of the company is, I think people are catching up to realizing that the earning power of this, the fact that we are moved affirmatively and very significantly into an asset lighter model, and that's going to continue. The fee generation coming out of ALG is additive to that and then accelerant. And the growth that we're going to see remains the highest in the industry and ALG is accelerated. So I just, I see a lot of things that we put into place that we will continue to execute against. We are looking at other potential acquisitions that fall into the same category. Growth platforms that we can execute on that would fit into our portfolio, that strengthen our position in the high-end traveler. We are by far the company that has the highest concentration of laundry and lifestyle and resort now. And with over 50% of our revenues coming from leisure travelers, we're exceedingly well-positioned as we head into next year.

Got it. Very helpful. Thanks, Paul. Just one really very quick follow-up on net unit growth. You mentioned delays with openings and starts. Any impact on signings and where are signings at today versus 19 levels?

We maintain our pipeline and signings have slowed in China for sure. People have basically put pens down for the time being. And I would say that the signing rate for upscale and mid-scale hotels in the U.S. has also slowed because of financing primarily. I should say, I'll correct that. signings that haven't necessarily flowed. The inclusion in our pipeline includes, in our opinion, they have to be fully financed deals in order to make it into our pipeline stack. So our signing activity and the LOI activity remains at a very healthy level, but they're not showing up in pipeline yet because they're not fully financed. So we are maybe very conservative when it comes to including what's in pipeline and what isn't.

Our next question comes from the line of Patrick Schultz with Truist Securities. Please go ahead.

Hi. Good morning, everyone. I believe you talked previously about low double-digit unit growth for your ALG pipeline. You know, I'm wondering how does that compare versus the market? You know, what is the overall competitive supply growth in those markets right now? Thank you. Thanks for the question. First of all, we had said that we expected low double-digit growth for the year. We've already met that in the first half of the year with a lot of activity underway. So I think, once again, ALG is proving to be really effective at translating their integrated platform into a differentiated position when it comes to competing for new properties, including conversions, by the way. More than 50% of the total conversions we've had year-to-date are in the ALG portfolio. With respect to the marketplace, the market, frankly, if you look at just rooms, It's dominated, excuse me, by owner operators, the Spanish companies and some others that primarily operate with building and then operating their own hotels. And the pace of growth there is necessarily limited by the capacity and both the financial capacity and the organizational capacity to continue to build hotels and to find sites that are attractive. ALG, on the other hand, is really the only scaled brand management company, which is strictly management in its business model in the world. So we feel like we've got the opportunity to do innovative deals for conversions of either single or collections of properties where families invested in resorts but are not prepared to continue to invest behind the platform that's required to continue to be a great operator. So that's really where the opportunity set lies. We have a global footprint with a growing level of activity across our other regions, that is the Middle East and in Asia Pacific where our teams are now spending more time together. One interesting development since we were last on the phone with you all is that we announced that an ALG executive, Javier Aguila, who was the founder of the Alula brand and ran ALG's European operations, will become the new group president for our EV in Southwest Asia region. And that will take effect in a couple of months' time. There's a lot there. Javier is an extraordinary leader, but he also understands the deal market in Europe extraordinarily well, having worked in private equity before he got into the hotel business. And he knows the all-inclusive market extraordinarily well. So we have a remarkable benefit of having two organizations that are working really well together, and I think that's just going to continue to support further growth. not just in Europe and the Americas, but really global.

Okay. Thank you.

Our last question comes from Dory Keston with Wells Fargo. Please go ahead.

Thanks. Good morning. Just two follow-up questions on ALG. Can you give the relationship between gross booking pace heading into a month or quarter versus the actual net package ref part that you achieve? I'm just trying to translate 44% PACE into RevPAR.

It would be roughly the same. However, we did mention that non-packaged revenue is actually growing at a higher rate than packaged revenue was and packaged RevPAR. So I would say that it's roughly the same with some upside from non-packaged revenue that's not embedded in the net package revenue ADR, or sorry, REVPAR that we report on.

Similar to the total REVPAR case that we provide on group, for example, and the translation to total revenue, which includes all of the S&B. the Legacy Hyatt portfolio.

Yeah, that's a really important reminder. So let me just take a minute on that. So in the second quarter, when we look at banquet spend, I'm talking about Legacy Hyatt now. Banquets in U.S. managed hotels represented 46% of our total revenue base in the second quarter, 46%. So we spend a lot of time talking about rev part progression and rooms But there's this entire other business, which, by the way, has been operating at a revenue level, banquet spend per occupied guest room level, 4% above 2019 levels, and driving margins that are now in excess of 50%. So our total revenue base, and therefore, by the way, our fee base, is being driven, fully half of it now is being driven by banquet spend. And when you look at PACE, for banquets and group events paced July through December, we're at 98% of 2019 levels. And just by way of reminder, our pace into the remainder of the year at the end of July is 93%. Local events is at 70%, but the group event pace is at 98, so the overall is about 90. That's a remarkable achievement, and in the same way that you would need to remember that banqueting and F&B is a really important part of our business. And by the way, a differentiator for us and for ALG. You would need to remember that for ALG. That's just groups. That's just for groups. The banqueting dining revenue base that I mentioned is just for groups. So it doesn't include outlets and other F&B revenue. So I would say it's got the same relationship. The non-packaged revenue success that ALG resource has demonstrated is something that we're actually tapping into. We are putting together a team to pull some of their F&B and programming across the Hyatt properties. And at the same time, we're taking Hyatt well-being programming that we are now expanding across our portfolio and pulling it into ALG. So we think that the opportunity set for non-REVPAR driven revenue growth is higher probably been our red-fire outlook in any period because we continue to provide really compelling experiences that our guests are paying a lot for.

Gotcha. Thanks. And then my last one is, now that you've owned the business for about 10 months, do you have any differing views on whether distribution needs to remain part of PE's UBC to achieve the best results across the three businesses?

I would say that to date, we remain in learning mode with respect to vacations. Learning and admiration, I think that the plan that they set out three years ago to transform that business has been executed excellently. The margin progression is running ahead of anything that I think they expected or we did. A lot of the choices that they made, delivered choices they made, have paid off. So I sit in great admiration for that team and also a key awareness that the integrated approach that we take does actually matter to our owner base. Having said all that, it is a business that has different attributes than our core business. But as we sit here right now, I would say we have benefited both at Legacy Hyatt Hotels as well as the LG portfolio from learning and from continuing to uncover ways in which we can leverage the vacation platform in different ways. So right now, our outlook is to continue to go down that learning path and make sure that we're maximizing the opportunity set that we can identify for maximizing value with no plans at this point with respect to any non-organic transactional activity. All right. Well, thank you to everyone for taking the time to join us today. Take care. We look forward to speaking with you again soon.

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