Q2 2022 Hyatt Hotels Corp Earnings Call
Good morning, and welcome to the Hyatt second quarter 2022 earnings call. As a reminder, this conference call is being recorded.
I'd now like to turn the call over to Noah Hobby 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 <unk>, Hyatt's, President and Chief Executive Officer, and John Barter, any hyatt's 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 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 or implied by our comments forward looking statements in the earnings release that we issued today along with the comments on this call are made only as of today and will not be updated as actual events people. In addition, you can find a reconciliation of non-GAAP financial measures referred to in today's rim.
<unk> on our website at Hyatt Com under the financial reporting section of our Investor Relations link and in this morning's earnings release and archive on this call will be available on our website for 90 days.
That I will 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, including 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.
Strong positive operating leverage, especially in our owned and leased hotel performance.
And finally industry, leading net rooms growth over the past five years.
In this same time period hydro 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 net contracts the strongest in the Companys history by a significant margin driven by a record level of leisure demand along with rapidly recovering group and business transient demand.
Comparable system wide revpar in the second quarter exceeded 2019 levels when excluding greater China.
In addition, ALG net package Revpar at our all inclusive properties in the Americas managed by ALG was ahead of 2018 levels by 17%.
Adjusted EBITDA for legacy highest also set a new record after adjusting for currency and the net impact transaction.
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 the stage recovery.
Demand has yet to normalize with system wide occupancy still down more than 1000 basis points to 2019 levels in the second quarter, our GAAP 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 nonresidential fixed investment have expanded in the mid teens percentage range or higher.
While our revpar in the United States, only just surpassed 2019 levels in June .
And on a system wide basis in July .
The revpar recovery still significantly lagged the broader economic measures and only with further recovery will travel spend regained 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 chain scale concentration will remain resilient in the face of potential macroeconomic pressures. The variety of data we monitor from Ford bookings to consumer sentiment surveys indicate the high end customers maintaining resilience and continues to prioritize.
<unk> trial.
This is consistent with consumer behavior for higher income groups during other periods of macroeconomic uncertainty.
When looking at comparable system wide revpar in our luxury brands in the Americas, and EMEA and Southeast Asia regions, 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 condition.
Fourth.
Our industry, leading net rooms growth.
Yet to be fully reflected in our financial results since.
Since the start of 2019, nearly 30% of our organic growth has come through openings in Asia Pacific.
Even with the strong mobile growth our Asia Pacific segment contributed only $6 million of adjusted EBITDA in the second quarter of 2022 as.
As compared to $20 million in the second quarter of 2019.
And the region has grown by over 13000 rooms were 35%.
We are seeing Revpar momentum in 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.
And overall commercial services engine as 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 Americas full service properties in the second quarter is a great demonstration of our progress with world of Hyatt members accounting for nearly half of our room nights and revenue booked directly through Hyatt channels, reaching nearly 74% both improving significantly over the same period of 2019.
Our brands are resonating with customers and we are 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 earning.
It is coming from our fee based business.
We believe the key attributes of <unk> 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 it's the latest trends from the quarter.
First starting with ALG this segment significantly exceeded our expectations once again this quarter.
To provide context through the first six months of 2022.
LG has already surpassed full year 2019 economic performance.
Net package Revpar for properties managed by ALG in 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 to compelling programming at Alg's resorts and the value that our high end customer base places on accessing Great addition.
<unk> experiences while on property.
The strong net package Revpar 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 at significantly more availability than in prior periods.
Turning to.
Gration efforts may nine Mark the official date when guests could start to earn and redeem world of Hyatt 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 41000, new world of Hyatt 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 revpar improving from down 25% to 2019 levels in the first quarter to down only 5% in the second quarter.
Excluding greater China Systemwide Revpar finished ahead of 2019 in the second quarter, demonstrating broadening demand for our hotels globally now that travel restrictions have been eased.
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 luxury brands, which actualized, 20% ahead of 2019 levels driven by rate growth of 'twenty.
7%.
This is particularly meaningful given that we have doubled the number of luxury 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 at urban locations was down 8% versus 2019 in the second quarter and are steadily shown month to month improvements being down only 4% from June and down only 2% in July as compared to 2019.
And Indian Southwest Asia, the region saw a travel resurgence with revpar growth of 12% to 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 periods of 2019.
The overall strength of recovery in the region can be attributed to solid growth in leisure and increase in business transient large events.
All contributing to stronger rates.
Meanwhile, Revpar 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 Revpar in the Asia Pacific region improved throughout the quarter when compared to 2019 from down 58% in April down 35% in June .
We remain confident in Asia Pacific's path to recovery with the continued ease of travel restrictions and improvement in aerospace.
We're particularly encouraged to see the recovery momentum accelerated in July with Revpar down less than 20% versus 2019 with a very rapid improvement in greater China, which was down only 21% in July a significant improvement from being down.
64% just two months prior.
From a segmentation perspective, we experienced another record quarter of leisure transient revenue up 19% to 2019 on a comparable system wide basis with the contribution of 54% 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 .
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 states that will occur this year at 45% above 2019 levels for our Americas 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 pace deficit of 16% to 2019, but actualize down only 11% 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% for 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, as particularly encouraging improving from 54% recovered in April to 71% recovered in June .
And our top 10 customers have recovered by more than 80%.
As more employees returned to office restrictions are eased and cross border travel more fully resumes, we anticipate business transient to continue to strengthen in the months.
Turning to growth, we had a strong second quarter of net rooms expansion.
We opened over 5500 rooms, contributing approximately 4600 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 illegal Maldives.
And the secrets mushy outside of Plaza El Carmen.
Additionally, we opened our first caption by Hyatt on the same field Street in Memphis.
We are excited about this innovative lifestyle select service brands and we are thrilled to have the first one opened and operated we look forward to many more to come.
Our total net rooms growth of 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.
Accelerated growth in our fee based business during the second quarter was heavily driven by our ALG resorts.
It is 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.
That's been the legacy Hyatt portfolio net rooms growth is four 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 have 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.
We know very well as it was previously the Hyatt Regency Irvine for over 20 years.
For exiting our system several years ago.
We purchased 541 room hotel for $135 million secured.
Securing our brand presence and 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 am 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 high it is advancing care for the planet people and responsible business.
We are proud that our wound care platform was named 2022.
ESG program of the year by Ragan Communications.
I'd like to share a few specific key ESG highlights.
First hi, it's science based targets were approved by the science based targets initiative.
Reflecting our focus on making significant reductions in greenhouse gas emissions.
Second.
I am 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 welcomed 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 with 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 towards 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 Joe over to you.
Thanks, Mark and good morning, everyone. My commentary today will cover consolidated financial results.
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 $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 ALC and significantly improved operating performance.
Adjusted EBITDA for the quarter were $255 million <unk>.
Additionally, net deferrals were $25 million and.
And net finance contracts are $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 $201 million for the quarter, which is approximately 13% higher than 2019 adjusted for currency and the net impact of transactions.
Improved performance at the legacy Hyatt.
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 net rooms growth.
Comparable revpar growth was 3% in 2019 in the America.
And 12% to 2019 and EMEA in southwest Asia in the second quarter with our Asia Pacific region trailing.
The Americas and EMEA southwest Asia lodging segments combined resulted in an approximately 11% expansion in 2019.
Turning to our owned and leased portfolio. This segment generated $99 million and adjusted EBITDA for the quarter down 14% to 2019 on a reported basis.
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.
At the same set of property.
Selecting another quarter of very strong operational execution and an increase in average daily rate of 15% in 2019.
International comparable owned and leased properties accounted for $9 million of adjusted EBITDA growth 2019, driven by strong results in our European property, namely the Park Hyatt Paris, and the park Hyatt Zurich. Additionally.
Additionally, our <unk> portfolio continued to perform exceptionally well generating $8 million increase in adjusted EBITDA compared to 2019.
Looking ahead to the third quarter.
Our revpar recovery strengthened in July benefiting from strong summer leisure travel and group demand.
System wide Revpar in July , finishing 5% ahead of 2019 and ADR growth of 17%.
Marking the first month and with 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.
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 level for our Americas full service managed properties.
Overall, the trends and trajectory at very encouraging and consistent demand is broadening geographically and by segment, we have confidence that the recovery in demand will continue into the latter half of this year and we're particularly encouraged by the momentum we're seeing in Egypt.
Turning to <unk> the performance of this segment once again significantly exceeded our expectation.
Adjusted EBITDA for the quarter was $54 million.
Net deferrals or $25 million.
And net finance contracts for $15 million as a reminder, it's critical to assess performance of some of these three items adjusted EBITDA net deferrals.
<unk> contracts.
Due to GAAP revenue and expense recognition requirement related to Alg's unlimited vacation club business.
We've provided a table on page three of the schedules in the earnings release referenced on that deferral in that finance contracts as well as the supplemental presentation for modeling <unk> contributions and Hyatt.
I'll take a moment to cover three areas that drove Alc's financial results first net package revpar for the same set of hotels in the Americas was up 17% 2019 during the quarter, reflecting strong net package ADR, which was up 19% in the <unk>.
Second quarter 2019.
New hotels added to the LNG resort portfolio and significantly improved performance.
$36 million in total fee revenue in the quarter.
Vantiv fees were notably strong record average rates fueled expanding operating margin growth.
Second approximately 8500 membership contracts were signed for Eog's Unlimited vacation club in the quarter. The primary driver of performance other revenues net deferral and net finance contracts.
This level of sales exceed 2019 by 20% driven by sales of memberships at higher tiers.
We see now has 125000 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 744000 guests departures, which drove $256 million.
Distribution destination management revenue and $206 million of expense quarter, reflecting approximately 20% margin on the business significantly above 2019.
As John 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 at very strong financial results, we remain optimistic as we look into the remainder of the year for several reasons.
Including the strength of demand and which we see no sign of softening travel restrictions that have been listed key ALG market.
Airlift that is approximately 24% above 2019 levels for key America's destination, and a favorable pricing environment.
Wed also reiterate ALG is seasonal and while we anticipate the growth rate relative to historical periods to remain strong.
The EBITDA contribution of this segment expected to moderate relative to what was generated in the first half of the year as we enter a seasonal period lower leisure demand and also make investments in the second half of 2022 targeted towards future growth opportunity.
I'd also like to provide an update on our strong cash and liquidity position as of June 30, 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 each.
Share repurchases during the quarter.
In addition to our cash position, we maintain approximately one $5 billion in borrowing capacity on our revolving credit facility.
We entered into a new credit agreement during the second quarter with a maturity of May of 2027.
As of June 30, we have no debt maturities in the next 12 months. However, we will have an option beginning in the fourth quarter of 2022.
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 investment grade profile.
Finally, I'd like to make a few comments regarding our 2022 outlook.
We acknowledged that long term visibility remains challenging, especially in certain markets, where travel restrictions remain in place. We expect full year 2022, systemwide revpar to grow between 55% and 60% to 2021.
And to be down between 9% and 4% for 2019.
This implies that revpar over the latter half of the year will be in the same approximate range as 2019, but 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 million to $465 million.
Excluding any bad debt expense and continue to expect capital expenditures to be approximately $210 million.
Lastly, turning to net rooms growth, while we recognize macro factors such as supply chain issues and COVID-19 related restrictions are impacting the timing of openings as Mark mentioned, we are particularly encouraged by the volume of conversion opportunities second half of 2022 and expect net.
Earnings 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 continued momentum in demand.
Thank you and with that I'll turn it back to our operator for Q&A.
Okay.
Thank you, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone Keypad you May press Star one again to remove yourself from the Q1 moment. Please for the first question.
The first question comes from the line of Joe Greff with J P. Morgan. Please go ahead.
Good morning, everybody.
<unk> results.
Mark I was hoping thanks, Joe talk.
A little bit in detail about the environment for divesting hotels right now.
Compared to buyer appetite and pricing versus six months ago.
Why does the bid ask.
To what extent is the buyer universe thinned out or has shifted.
Buyer characteristics.
Okay.
Thanks, Joe.
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.
<unk> discovered that that can work in favor of all cash buyers and.
I think we took advantage of that and being able to be certain with the Irvine company about purchasing hotel whereby.
I think that was the difference maker in being able to secure that hotel and what we think is a very compelling value, but the certainty of closing with a 100% because we are a cash buyer. So I think thats actually the key issue.
I think the it's hard to say that it's actually had a direct impact on realized values.
Got it.
Mike.
A year from now we have.
Interest rates.
This or higher levels and availability at lower levels.
It might because youre talking about.
Hunk of the buyer universe that meet significant leverage to make the numbers work not plant.
We have.
Number of unique assets.
Remaining in our portfolio of significant value.
Things like the Hyatt Regency in Orlando, which is <unk>.
We are 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 mirror all portfolio all of which continue to perform exceedingly well and the buyer universe for a number of those properties is not really.
I would consider the market.
So we don't have a particularly.
Any particular concerns where 1000% confident we will get to and probably exceed the $2 billion goal that we set for the end of 'twenty four.
Great and then my second question for you guys.
Is it with respect to your.
Target for the share grow net rooms by greater than 6%.
Obviously ALG is experiencing.
Stronger than expected loan growth that 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 four 6%.
That you guys achieved in the second quarter and Thats all from me.
Yes.
Yes 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 <unk>.
I think we're more than a 1000 basis points above that now year to date and that's.
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 lengthy rather legacy high growth has to do with China, which really took a full three to four month break.
It was a heartbreak like construction shutdown and completion rates stopped.
Up until the Lockdowns, we own 51% or thereabouts of all of the hotels.
We set out at the beginning of the year that we felt would 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 for COVID-19 and supply chain.
So those are the key issues, but they are temporary.
When we see the kind of recovery that we talked about in China in terms of the actual revpar recovery into July .
Gallon basically 80% recovered in July up from 40% of our 45, 35% recovered in April .
A huge.
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 restrictions, but.
Overall, whether we open our.
Our full measure of <unk>.
Scheduled to open hotels in China, this year or into the first quarter of next year, it's less important to us than then knowing that we've got that backlog, which we do.
We are really confident about our greater than 6% outlook for the year, primarily based on other substitution that we've that we've been able to get a breast ups.
Our question comes from the line of Shaun Kelley with Bank of America. Please go ahead.
Hi, Good morning, everyone. Thanks for taking my question.
I just wanted 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 how we're going to be able to sort of repeat the levels of demand that we've that we've experienced so far. So I was wondering if you could just help us think about this business line kind of structural versus cyclical. So how much of the growth are we experiencing is due to new room to add to that system since 2019 growth in the vacation kind of.
Yes, the unlimited vacation club offering versus just the Revpar PSA I know, it's maybe a little bit detailed but help us think about kind of those two areas of the business. So we get a better sense of how.
How much of that growth, we can keep if demand does normalize a little bit.
Yes, maybe Sean I'll start with a couple of comments about the seasonality question that you raised clear.
Clearly, we saw exceptional demand across all of the leisure oriented businesses.
<unk> in the first half of the year and traditionally signed 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 has been some tailwind with respect to the reduction in.
The limitations being reduced.
Travel.
The Caribbean and Latin America back into the U S. So.
That provides a tailwind and we're seeing that the growth that you just mentioned the new unit growth, it's actually helping to also fill in some of the areas that may have been a little bit slower so.
It's a learning process for us the momentum is exceptionally strong as we look forward and see the holiday period.
Our up significantly into the festive period and.
Even our scene.
Strong momentum into the first quarter of 2023.
And then just maybe a comment before I turn it to Mark is that net of.
The record level of fees that we generated in.
The quarter.
LNG contributed about 20% of those fees and about 50% of that is coming from incentives.
So ALG contribute 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.
So there are a couple of other things I would just add to that first.
Gross package revenue in July was something like 74% above the same period of 2019, which is a staggering number a lot of that is the the growth the actual organic growth in the portfolio.
We are more than 50% bigger.
<unk> enterprise as a network.
When we were three years ago.
The pacing that Joe referenced.
Is quite remarkable.
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.
We're getting both the benefit of the growth of the system.
And.
Pacing those those data for all comparable ALG resorts part of that is being driven also by Europe .
Europe was very disruptive last year because of the omicron.
Scare sort of persisted into late in the summer.
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 next 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 <unk>.
Not something that is a flash in the pan.
And I think there is a misconception that it's all a bunch of volatility and that's just incorrect.
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.
In the Americas, we're able to actually get passengers, where we have resorts, which is really important on the QVC question are are our growth model. When we purchased the company. The underwriting was to maintain all of the metrics that UEC had historically, meaning the number of guests that we introduce to the.
UBC product and also the conversion rates of those who come to investigate.
Sure.
Those who buy we haven't assumed any major changes in those in those rates in our projections. So a lot of it is being driven by net rooms growth.
The other thing I would say, though is that the entirety of our UBC member base only represents 13% of our total revenue.
So there is 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 enjoy software margins.
The ground.
The destination management company <unk> enjoys very healthy margins and very solid attachment rates of like 75% of all vacation business that's booked.
So while we are 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 BDC 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 BDC.
Activities and promotional activities with respect to.
All of our resorts in Europe and in the Americas, because we feel.
We're selling into strength at this point.
Thank you for all the detail and maybe just as a follow up but just really sticking with the same theme.
Obviously, the business has changed pretty dramatically when we factor in ALG and when we just think about the enterprise wide.
Let's call it EBITDA or operating income can you help us just think about how typical seasonality should progress maybe a little bit for modeling purposes. Just so we can not get too far out over our skis or over our umbrella.
Yes, it's a little tough to answer with specificity only because look the first half.
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 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 that there is seasonality we remember.
We remind ourselves that we live in a seasonal.
<unk> business and we and the second rule is never forget that rule.
So we don't think.
We'll see the same persistent level of of earnings through the remainder of the year.
However, I would say we are confident about the back the back pressure of demand that will persist and I think our job right now is to optimize what we're doing and the poll world of Hyatt through in a more aggressive way.
At 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 AIG portfolio and vice versa. We've gotten good references from ALG two legacy <unk> portfolio.
So 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, we're going to be these are not persistent investments that will be every year forever. More 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.
Good morning.
Mark Big picture question for kind of on next steps for the company Alg's performing well you just explain 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 positions.
We've got.
We produced remarkable results in the second quarter with a 1000 basis point gap to 2019 occupancy levels really all of which is group and transient related.
Be well.
While we are getting back to 2019 levels just now.
We are ahead of 2019 in July our.
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%.
Nonresidential fixed investments are up in the high teens.
Revpar is now just recover so if you look at total share of wallet 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 I don't know if there is going to be.
Any significant pressure on the overall economy. There are a lot of counter availing forces I can tell you that our customer base is rock solid.
And all of the forward looking data that.
We shared including the.
The fact that our top 10 customers are 80% recovered in business transient and growing.
Is is really great evidence that across our portfolio.
We expect.
To continue to execute to continue to drive higher loyalty.
Loyalty penetration, which is now approaching 50% of our total room count room revenue.
Direct channel, which is.
Approaching 75% of our.
Total total high channels that is of total production with a with a.
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.
We are going to meet our <unk> 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.
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 mirror ball to roads, and ALG, which have yielded platforms that have significant prospective growth debt.
That we created at high single digit.
Very low double digit multiples so the value creation in that trade is somehow maybe.
Maybe misconceived.
I just wanted to remind everybody that our business. There is a method to how we went about doing this because 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 are.
Needing to issue new stock is 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 Hyatt Regency Indian Wells and then Tom the capacity to acquire renovate reposition and sell.
In some cases in very short order assets and Thats precisely what we plan to do so if you look back. This hotel went independent in 2014. It was shut down from 2000 22022, so our multiple of acquisition. If you look at 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 even if you add $40 million to the 135 purchase price that only gets you to 323000, a key which in a market like Irvine as an extraordinary results for a full service hotel.
By the way it 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 dead center for us at the center of the Bullseye in terms of people that we want to serve more.
So I think that the evolution of the company.
Is I think people are catching up to realizing the earnings power of this the fact that we have moved affirmatively and very significantly into an asset lighter model and thats going to continue.
Fee generation coming out on ALG is additive to that an accelerant and the growth that we're going to see it.
It remains the highest in the industry and EOG has accelerated.
I just I see a lot of things that we put into place that we will 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.
Strengthen our position in the high end traveler.
By far the.
The company that has the highest concentration of luxury and lifestyle.
And resort now and.
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 for all that just one very quick follow up on net unit growth you mentioned delays with openings in starts any impact on signings and where our signings at today versus 19 levels.
We maintained our pipeline.
And signings have slowed in China for sure people are basically put pens down for the time being.
And I would say that the signing right.
Sure.
Scale and mid scale hotels.
The U S has also slowed because of financing primarily I should say I'll correct that signings to haven't necessarily float.
The inclusion in our pipeline.
Includes in our opinion they have to be fully finance deals in order to make it into our pipeline stat. So are signing activity and the.
The LOI activity remains at a very healthy level, but they are 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 what's in pipeline and what is that.
Our next question comes from the line of Patrick Scholes with <unk> Securities. Please go ahead.
Hi, good morning, everyone.
I believe you talked previous quick good morning, I believe you talked previously about low double digits.
Unit growth per year ALG.
<unk> pipeline.
I'm wondering how does that compare versus the market 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.
<unk> met that in the first half year with a lot of activity underway.
So.
Once again ALG has.
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 is if you look at just rooms.
Dominated excuse me by owner operators.
<unk> 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 the both the financial capacity and the organizational capacity to continue to build hotels and find sites that are that are attractive.
<unk> on the other hand.
Is really the only scaled.
Brand management company.
Which is strictly management.
Sure.
<unk> and 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 at properties, where families invested in resorts, but are not prepared to continue to invest behind the platform.
Thats 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.
We announced that and ALG executive.
Irregular.
Who was the founder of the <unk> branded ran Alg's European operations.
Become the new group President for our <unk> and Southwest Asia region.
And that will take effect.
And a couple of months' time and.
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 he got into the hotel business and.
The all inclusive market extraordinarily well so we.
We have a.
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 Dori Kesten with Wells Fargo. Please go ahead.
Hi, Thanks. Good morning, just two follow up questions on LG can.
Can you get the relationship between gross booking pace heading into a month or quarter versus the actual net package revpar that you achieved in just trying to translate.
24% pace into Revpar.
It would be roughly the same.
However, we did mention that non package revenue is.
Actually growing at a higher rate.
And package revenue was impacted in the packet net package revpar. So I would say that it's roughly the same.
With some upside from non package revenue that's not embedded in the in the Neb package revenue ADR or sorry, Revpar that we that we report are similar to the total revpar pace that we provide and grid for example, and.
<unk> total revenue, which includes all of.
Yes, the legacy Hyatt.
Portfolio. Yes. This is a really important reminder, so let me just take a minute on that so.
In the in the second quarter, when we look at banquet spend I'm talking about legacy Hyatt now.
Banquets and 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 revpar progression and rooms, but theres this entire other business, which by the way.
<unk> has been operating at a revenue level banquet 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 a banquet spend and when you look at pace.
For for.
For banquets and group events group events.
July through December we're at 98% of 2019 levels.
And just by way of reminder, our patient into the remainder of the year at the end of July it's 93%.
Local events is at 70%.
The group event paces at 98, so the overall, it's about 90.
That's a remarkable achievement 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 EOG.
You would need to remember that for ALG.
And that's Jeff groups, that's just for group the equity dining revenue base that I mentioned is just for groups.
So it doesn't include outlets and other F&B revenue.
I would say it's got the same relationship the non package revenue success that ALG.
<unk> has demonstrated its something that were 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 wellbeing 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.
As.
Higher probably than our revpar outlook in any period, because we continue to provide really compelling experiences that our guests are paying a lot for.
Got you. Thanks, and then my last one.
Now that you've owned the business for about two months do you have any differing views on whether it's distribution needs to remain part of <unk>.
<unk> seen the best results across the three businesses.
I would say that to date.
We are we remain in learning mode with respect to vacations.
Learning and admiration I think that the plan that they've set out three years ago to transform that business has been executed excellently.
Margin progression is running ahead of anything that I think they expected or we did.
A lot of the choices that they made deliberate choices they made it paid off.
I sit in great admiration for that team and also a keen awareness that they integrated approach that.
We take does actually matter to our owner base.
Having said all of that.
It is a business that.
Different attributes than our core business.
As we sit here right now I would say we have benefited.
<unk> at legacy Hyatt hotels, as well as the ALG portfolio from learning and from continuing to uncover ways in which we can leverage the vacations platform in different ways. So.
Right now our our outlook is to continue to.
Go down that learning path and make sure that we're maximizing the opportunity set that we could identify for maximizing value with no plans at this point with respect to any non organic transactional activity.
Okay.
Alright, 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 you may now disconnect.
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