Good day, ladies and gentlemen, and welcome to the Hyatt Third Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] 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. Thank you, please go ahead.

Thank you, Blue. Good morning, everyone, and thank you for joining us for Hyatt's Third Quarter 2021 Earnings Conference Call. Joining me on today's call are Mark Hoplamazian, Hyatt's President and Chief Executive Officer; and Joan Bottarini, Hyatt's Chief Financial Officer. Before we get started, I 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 issued today, along with the comments on this call, are made only as of today and will not be updated as actual events unfold. In addition, you can find a reconciliation of non-GAAP financial measures referred to in today's remarks on our website at hyatt.com under the Financial Reporting section of our Investor Relations link and in yesterday's earnings release. An archive of this call will be available on our website for 90 days. And with that, I'll turn the call over to Mark.

Thank you, Noah. Good morning everyone and thank you for joining us for our third quarter 2021 earnings call. As most of you have seen, we officially welcomed all of the Apple Leisure Group colleagues into the Hyatt family earlier this week. We closed on the acquisition of Apple Leisure Group on November 1, and we're collectively even more thrilled about the prospects for the combined company today than we were when we first announced our plans back in August. As I reflect over the past several months, during which I've gotten to know the ALG much better, met with hotel owners and toured a number of stunning AMR Collection Resorts. I'm energized and really excited about the bright future for ALG as a part of Hyatt. The cultural fit between our two companies with a joint focus of care could not be better. And the timing is proving to be very auspicious as leisure demand continues to be durable, and a growing proportion of our segment mix. We look forward to keeping you well informed on the progress of our integration efforts and performance of the ALG platform moving forward. Turning to our results, we're another quarter into the recovery and have again produced results that demonstrate the strength of our business and reinforce that we're emerging from this challenging period as a more agile and stronger company. In the span of just two quarters, our quarterly adjusted EBITDA has improved $130 million recovering to nearly 70% of 2019 levels in the third quarter. We've worked tirelessly to evolve and reimagine aspects of our operating model, and the financial results and our momentum demonstrate our progress. Importantly, while we had been focused on preserving cash and managing expenses tightly, we've invested in areas that are driving growth, and we've…

Thanks, Mark. And good morning, everyone. Late Yesterday, we reported a third quarter net income attributable to Hyatt of $120 million and a diluted earnings per share of $1.15. With our results favorably impacted by gains on the sale of real estate of $307 million. Adjusted EBITDA with $110 million in the third quarter, effectively doubling our adjusted EBITDA from the second quarter, again demonstrating our ability to translate improving demand into a strong increase in earnings. In a RevPAR environment that is improving, but still challenging. We were able to narrow our adjusted EBITDA decline to only 32% in the third quarter versus the same period in 2019, which is the same as our system wide RevPAR decline of 32%. Additionally, our adjusted EBITDA margin was 27.4% for the third quarter, an improvement of 50 basis points from the adjusted EBITDA margin of 26.9% we reported in the third quarter of 2019. Serving as yet another marker of operating excellence in a lower demand environment. System wide RevPAR was $94 in the third quarter, representing a 29% increase compared to second quarter. Both occupancy and rate contributed to the sequential growth with occupancy improving by 700 basis points and rate growing by 12%. The improvement in rate is especially notable as it reached 96% of 2019 levels on a system wide basis. Our based incentive and franchise fees totaled $96 million in third quarter, reaching 71% of 2019 levels with base and franchise fees more fully recovered than RevPAR as a result of our strong net rooms growth over the past two years. Turning to our segment results, our management and franchising business delivered a combined adjusted EBITDA of $85 million improving 33% from the second quarter. The Americas segment accounted for the vast majority of the sequential growth…

Thank you. [Operator Instructions] Your first question comes from the line of Stephen Grambling from Goldman Sachs. Your line is now open.

Hi, thanks. Maybe to follow-up on the ALG integration. Should we assume that the integration costs could continue on into 2022 and then, as you've seen the stronger trends and learned a bit more about the business, how are you thinking about potential synergies whether on the cost or revenue side? Thanks.

Joan, why don't you take the first part of that, and I'll weigh in on the second.

Sure, Stephen. We're in the middle of planning for the integration efforts. We expect them to be minimal in relation to acquisition size, because of the way we're approaching the acquisition, which Mark will get into. The $5 million to $10 million, I would say is a modest estimate. And we'll give you an estimate regarding 2022 in our fourth quarter earnings call.

Great.

Sorry, Stephen. Just in terms of the content of what we're doing and how we're approaching this. A few things that I just want to note, the first is when we underwrote the transaction, we did not assume any cost synergies embedded in our analysis, we recognize that both companies have actually reduced staff significantly across their functions. And we have and ALG has. And we also recognize that there's great talent in the combined company. And we believe that we can be adding back resources without adding to the total run rate expense base. But we do see a large number of significant value creation opportunities, and they're almost all on the revenue and development side. We're in the middle of doing a number of things. We've had time to plan, but we've operated as separate companies until two days ago. But we've had the opportunity to at least plan as to how we would go about coordinating our development efforts, our World of Hyatt and unlimited vacation club efforts and of course the talent pool, it remains front and center for us across the board. And we will be extending opportunities across both organizations to all colleagues within the Hyatt family going forward. But the other thing that we spend a lot of time learning about and really getting more excited about are the capabilities within ALG vacations, and Trisept Solutions, we see a lot of interesting platform opportunities, they have a very strong base of capabilities that are primarily in the packaging and very novel approaches to revenue management and working with third-party channels that we think we can actually apply to existing Hyatt Resorts and not to mention the destination management companies that they operate in different markets. So we think that there are going to be a lot of opportunities to unlock significant benefits coming through to the Hyatt portfolio out of their capability base and vice versa at the same time.

That's helpful and maybe changing gears as you think about the additional assets sell down. Most of the public REITs have called out a very robust transaction market. As you see that strength you have the flexibility to move faster and take advantage of that, or would you want to generally have the sell down balance through 2024 for additional capital flexibility?

Well, I think we're paying attention to what's going on in the marketplace. So it will not surprise you to hear that the first couple of assets that we've taken to market are leisure focused assets, one resort and one leisure dominant hotel. And we're in discussions on a number of other projects at this point with interested parties. So I feel like there's going to be tremendous interest. And we will have a lot of options as to how we actually pursue this, we have mapped out several different scenarios as to how we will achieve this. And I can just tell you that our history and practice has been to deliver on our sell down commitments earlier and better, better in terms of valuation and also total realization than we commit to. So I don't expect this to be any different than our history.

Great, thanks so much. I'll jump back in the queue.

Your next question comes from the line of Smedes Rose from Citi. Your line is open.

Hi, thank you. I was just wondering if you could talk a little bit more about what you're seeing on the labor side, you mentioned that open positions are available and maybe help some of the results of owned and leased? Just where are you in terms of the percentage of re-staffing and kind of what are you seeing on the hourly labor costs?

So I'll start with that, and then give it to Joan to talk a little bit about the productivity that we've seen that we've gained over time and what the implications are for the future. The labor market remains really tight, it's tightest in the markets in which we've seen the highest spacing of demand which are primarily leased markets. So if you look at markets, like Orlando, or Austin, San Diego, those kinds of markets where you've seen significant leisure increases, you've also seen the highest wage rate increases, and also the tightest labor markets. So we still have 1000s of open positions across the country. And we are working hard to hire people at this point. And wage rates have gone up anecdotally between 10% and 20%, depending on where -- which market you're talking about and for which category of labor. So housekeeping, for short has gone up probably on average, low to mid-teens in terms of elevation of wage rates. And the same is true for entry level cooks and other frontline positions. We believe that this will start to work its way through over the coming months, we do think that that wage rates will be higher. There's no question about that, that's not ambiguous at this point. And it's also true that in an inflationary environment, we do expect to see rates move, we've already seen that with very significant resort rates in particular, which is probably the most the highest demand and the most acute example up 30% or 40% in some cases. And so you've got a dynamic in which I think the overall economics will actually work well, and we should benefit from inflation over this period of time. And it's also true that we are going to need to continue to reach further and deeper into the communities in which we operate, and hopefully bring a lot of people who are out of working out of school at the moment back into the workforce through the hospitality industry, which is what we're working on and the HLA is working on as well. Joan, you might want to just comment on productivity and what the implications are for the future?

Sure, it's certainly true that we've had significant productivity gains, and some of which had been helped by the labor challenges. And over time, as we make progress on the actions that Mark had described, that will help to moderate some of the guest impact that's currently being experienced right now because of the labor challenges. But there's also longer-term structural modifications that we've made to improve productivity, which I've commented on before, but I'll just remind you, clustering of overhead positions across hotels in certain markets, and the works and investment on our digital capabilities, which has also helped to improve productivity. And the way in which we're approaching F&B options into the most profitable venues and outlets in our hotels, that has led to both exceeding guests expectations as it relates to SMB offerings, but also helping to improve productivity. So all those items that I just relayed are stickier, and will lead to improved margins over time, even when the labor situation dissipates.

Thank you. And then Mark, Could I just follow up on your some opening remarks that you made? Where you noted market share growth, direct booking mix, and I think a higher percent of loyalty members coming through your system? Could you maybe just share numbers behind that? I mean, I don't know if you have like a RevPAR index number. What percentage of customers are booking directly now through hyatt.com and kind of what percent are loyalty members of your overall occupancy? And I know have some contacts you can share that in?

Sure. So overall, we are running at around 70% direct channel, and the growth in direct channel this year. So just to put some context around this. Last year, we had leisure took off. And it was from varied sources. And specifically since I would say that the -- there is a significant cohort of our world of Hyatt members that are business travelers, it wasn't the business travelers that were primarily traveling in the initial part of the recovery last year. So over the course of 2020, we were in I've described this before, we were in discovery mode, trying to identify where demand was coming from and how to both capture that and maximize our both capture rate, but also how we could engage those guests going forward. And what we've seen this year is a transition, we've now seen a much higher incidence of our own loyalty members traveling, which has led to a very significant increase from last year to this year of the proportion of our room nights that are coming through our loyalty program. I don't have the exact figure, but it's around 40% of the total this year that is coming from mobile Hyatt than that range. And I think the other thing that I would tell you is that the direct channel growth has exceeded OTA growth as a rate since beginning of the year, significantly, so we are seeing a real transition away from what turned out to be a higher level of third party channel access. Last year, while we were, as I described it, discovering demand to really getting back to getting see our members back on the road and also being able to engage with them. And especially with the ALG acquisition, being able to serve a lot more of their leisure purposes visit trips, starting immediately. So we're excited about all of that and think that this will accelerate the penetration for the whole system. And allow us to have a deeper relationship with our core customer base.

Thank you for that detail.

The next question comes to the line of Thomas Allen from Morgan Stanley. Your line is now open.

Hi, good morning. So it's been a little while now since you announced the ALG deal. Can you give us any update on your dialogue with their owners and kind of feedback you've gotten from them? Thank you.

Absolutely. I have -- along with Alejandro Reyna, who is the CEO and President of ALG. Together, we have visited with owners that own I would say a bit over 90%, somewhere between 90% and 95% of all their properties. One way in which we've been able to do that, by the way is that over 80% of their hotels are owned by owners who own more than one. So which just also demonstrates the repeat customer nature of their owner commitments. And I am telling you, that response has been phenomenal, actually, even stronger than I had hoped. Because I think that there's several dynamics here. The first is they see the network effect benefiting their hotels, both through world of Hyatt and our customer base, but also the broader capability set that we've gotten on a global basis. And they see that as strengthening the proposition for guests coming to their hotels, the AMR collection hotels. They do see channel benefits, so we believe that we will be able to drive down channel costs by increasing direct channel access, even as we continue to optimize what's available through the ALG vacations platform, which is really significant. The capability said that ALG vacations is not just that packaging capability, it's also revenue management and the linking of other pieces of the holiday experience, namely the destination management piece. On the ground transportation and excursion development that is an essential part of the decision to buy these kinds of vacations, and they recognize that is going to get now get exposed to a much broader base of customers. And finally, there is a certain element of I don't want to overstate this. So I say this humbly. But there's a certain validation that comes with of the segments of this…

Hopeful, thanks. And then I have to admit that when I read your press release this morning, I thought there was a typo when it said the Alila Ventana Big Sur it? Can you just talk about it? You bought it last quarter, you sold it back this quarter? Obviously, you're not a long term, necessarily a long term real estate holder. But why the strategy of doing this so quickly? Thank you.

Well, I guess, first of all, I'll just reiterate what you just said that you're right, we're not alone from holder we didn't designed to be. Secondly, we took really significant care and in depth on the rating on that asset -- it was obviously a very high price per key, and a very a much lower multiple of current earnings, because this year has been extraordinary. And so we map out a number of projects that we thought would really enhance the fundamental future for the property, which is going to require some capital, and not a huge amount of capital, but high return investments that really have to be done in a very best way. And so what we thought was, there's a lot of interest in this type of asset right now, we have built a really compelling plan for the hotel, including some enhancements with respect to how we're going to market with a hotel. And we also learned that hosts, which is one of our biggest partners, and as an owner, had interest in the hotel, and we ended up in discussions with them. And they actually saw the same opportunity that we did. They have experienced executing on these kinds of property improvements, and we have confidence that there'll be able to do that. And we earned. So we bought the asset, we earned a mid-teens return while we owned it. And we sold it for a profit, despite keeping a very long-term management agreement. So from our perspective, we just ended up securing a very long-term presence in this impossible to replace asset with a partner who's going to put money in and enhance the proposition of the asset for our customer base, and also the returns going forward. So it felt like a triple win to us. And that's really the whole story.

Very helpful. Thank you.

Your next question comes from the line of Vince Ciepiel from Cleveland Research. Your line is now open.

Great, thanks. You've mentioned RevPAR and EBITDA both being 32% off in the quarter, if you look at own margins. And they're really impressive and look about in line with 2019 levels maybe even better. With RevPAR still being it was 17ish percent off. So curious how you're thinking about margins kind of going forward. If this relationship should hold, given the strength on ADR and your comments on the overall economics working well? You think you'd benefit from inflation? Are you thinking margins from here?

Sure, thanks for the question. Certainly very, very great results and contributing $51 million of EBITDA on the quarter, which is very great to see. As we think about the margins, there are -- the temporary factors that we reviewed just a moment ago relating to labor challenges that we've been having. But also, when we think about the operational execution, and what I described as the substitution and the use of the assets in different ways by our managers has certainly led to those strong results. The rates in the portfolio remained flat in the quarter, despite the decline in RevPAR. So that dynamic definitely helped to lead to the flow through game. And there's a greater mix of rooms revenue. So that'll be a little bit of a headwind as we welcome more groups into the coming quarters, and obviously have catering and more F&B into those hotels that are gathering that demand. All of the longer-term structural modifications I talked about earlier, those will be sustaining. So we've communicated before that we expect about a 100 to 300 basis point improvement over time on a stabilized basis. So there's some sticky items. And there's also some temporal items that that are result of the great performance of our managers in the field. One thing I would mention about the performance of the owned and leased portfolio is that the sales of the two assets, Lake Tahoe and Alila Ventana, they had seasonally, those two assets are very, very strong in the third quarter, and they contributed about $10 million of EBITDA those two assets alone. So as you think about picture those now translating into asset light earnings and management fees for those long-term contracts. But we will be not be recognizing owned results from those assets given the sales.

If I could just add one quick note on the owned and leased portfolio, which is relatively it's got a balance of urban and some and in group concentration within our own portfolio. The group results this past quarter were really amazing to see that the in the quarter for the quarter demand was a significant net positive over the course of the quarter. Despite the fact that we saw a lot of cancellations in August into September. And specifically, we had over $20 million of expansion of group realization that is actual group's attendance showing up and higher level of spend, which offset about $20 million of cancellations in the quarter, which is extraordinary. So the current demand for group as we see it now is really strong. And if we look at the tentatives, the tentatives for larger group sizes. And we're going from like two-thirds of our tentatives looking like they would be 100 rooms or less to a third of them being a 100 rooms or less. So we really see a great deal of momentum there, which I think will be good well for as we head into next year.

Great and unrelated follow-up this time on room growth. Core business looks like it's on track for that 6% plus. Mentioned ALG, I think was up 35% this year. And curious for the combined organization I know previously talked about long-term goal of getting back to 6.5%, 7% type clip, and you layer an ALG, which appears to be growing faster. Do you think the whole thing can grow faster than that or how are you thinking about units long-term?

Yes, so pipeline composition is shifting. And we are going through the combined pipeline and the opening schedule as we speak. And so we won't be able to really comment on specific levels until we talk on the next earnings call. But I guess what I would tell you is the current existing pipeline that ALG has this is significant. And they have a lot of very far advanced projects. So they have 24 hotels that are technically in pipeline, they have a same rigorous screen that we do, which is has to be fully financed, signed in financed in order to make it into pipeline counting as a pipeline hotel. But they have 40 others that are in various stages, some of which I think we would count as pipeline. Even though they're very conservative about it. So we're still working through that. And we'll be able to talk a little bit more in detail on the next call. In the short-term, a bit challenging to say whether '22 will be an accretive growth to rate year, but over the medium-term the next several years. We do think it's going to be accretive. We think it will be additive to our own growth rate.

Thank you very much.

Blue, we'll take our last question, please.

Thank you. Your last question comes to the line of Chad Beynon from Macquarie. Your line is now open.

Hi, good morning. Thanks for taking my question. Just one for me with respect to IMF fees. Could you remind us what percentage I guess pre-COVID was in the Americas versus outside of the Americas? And then also, given the strength that you saw in the quarter? Can you kind of help us think about what percentage of those in the Americas are starting to get above the, I guess, positive GOP? And when we could start to see those start to pick up? I feel like it's the last piece of the business model that that really hasn't started to see the compression yet? Thanks.

Yes, sure. I'll start and then I'll let Mark add anything he'd like to add. We generated $10 million of incentive fees in the quarter and on a stabilized basis. In 2019 that is we were fully recovered in franchise fees, base fees were about 80% down -- excuse me, recover to 80% and incentive fees were recovered almost 30%. So recognize the reason behind your question. If you look at on a stabilized basis, the U.S. has generates about 25% of our incentive fees on a stabilized basis. And the remainder comes from international markets. And so as we look at borders reopening and recovery momentum gaining in those markets, we'll definitely see recovery over the coming quarters going forward. On your specific question relating to the U.S., we're about 24% recovered in the U.S. specifically on incentive fees. So we've got some room to grow here. And I don't have a specific number relative to those hurdles. But it sounds like you're clued into the fact that you guys have more hurdles, international contracts are earning incentive fees at the first dollar of GOP generally speaking. So it will ramp up, but it's going to take some time over the coming quarters.

Okay, perfect. Thank you very much.

You're welcome.

Thank you. There are no further questions at this time. Noah Hoppe I'd turn the call over back to you.

Thank you everyone for taking the time to join us today. Take care and 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 all disconnect.