Hyatt Hotels Corporation (NYSE:H) Q4 2021 Earnings Conference Call February 17, 2022 10:00 AM ET

Company Participants

Noah Hoppe - Senior Vice President of Investor Relations
Mark Hoplamazian - President & Chief Executive Officer
Joan Bottarini - Chief Financial Officer

Conference Call Participants

Stephen Grambling - Goldman Sachs
Patrick Scholes - Truist Securities
Thomas Allen - Morgan Stanley
Smedes Rose - Citigroup
Chad Beynon - Macquarie

Operator

Good morning and welcome to the Hyatt Fourth Quarter and Full Year 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers presentation, there will be a question-and-answer session. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. [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.

Noah Hoppe

Thank you, Rob. Good morning, everyone and thank you for joining us for Hyatt's fourth quarter and full year 2021 earnings conference call. Joining me on today's call are Mark Hoplamazian, Hyatt's President and Chief Executive Officer; and Bottarini, Hyatt's Chief Financial Officer.

Before we get started, I'd like to remind everyone that our comments today will include forward-looking statements under federal securities 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 yesterday, along with the comments on this call, are made only as of today and will not be updated as actual events unfold. In addition, you can find a reconciliation of non-GAAP financial measures referred to in today's remarks on our website at hyatt.com under the Financial Reporting section of our Investor Relations link and in yesterday's earnings release. Lastly, you'll note that we've provided a slide presentation on our Investor Relations website and on our Form 8-K filed yesterday that will supplement our discussion today. We will reference certain slides during our remarks.

Today's remarks will provide details on new disclosures as this is the first quarter we're reporting Apple Leisure Group results as part of Hyatt. As always, we will provide as much time as possible for Q&A and will be available after the call for follow-up questions. An archive of this call will be available on our website for 90 days.

And with that, I'll turn the call over to Mark.

Mark Hoplamazian

Thanks, Noah. Good morning, everybody and thank you for joining us for -- today for our 2021 fourth quarter and full year earnings conference call.

I'd like to begin today by expressing my deepest gratitude to every member of the Hyatt family. The last two years have been the most challenging this industry has ever faced, beginning with an unprecedented level of disruption in 2020, followed by a rapid but very uneven recovery in 2021. We've successfully adapted to this dynamic environment by getting closer to our best customers and World of Hyatt members even as we quickly adapted and discovered new sources of demand, all while maintaining an unrelenting focus on our purpose: to care for people so they can be their best. I'm very proud of the way the Hyatt family has responded and continuously adapts to an ever-changing environment. We have not only successfully navigated the pandemic to date, we've emerged in a position of tremendous strength.

As I reflect on this past year, 2021 was the most transformative since Hyatt went public. We're fundamentally stronger and better positioned for several reasons. First, we completed the acquisition of Apple Leisure Group that I will refer to as ALG, the biggest acquisition in the history of Hyatt. ALG was entirely on strategy for us. ALG focuses on the high-end traveler. It nearly doubles our resort offerings. It significantly expands our presence in Europe. And most importantly, it is an asset-light and growing platform with great momentum that significantly increases our mix of EBITDA driven by highly resilient leisure demand.

A second transformative event in 2021 is that we realized approximately $630 million of gross proceeds from owned hotel dispositions, leading to the completion of our $1.5 billion commitment ahead of schedule. And we launched a new $2 billion asset disposition commitment. We expect Hyatt to reach 80% fee-based earnings by the end of 2024, further creating long-term shareholder value.

Third, we had another year of industry-leading net rooms growth and reached a new record for rooms in our pipeline. Lastly and very importantly, we had an exceptional year operating with excellence as demonstrated by the significant advancements in key metrics that drive owner preference, namely RevPAR index, direct channel revenue mix, number of World of Hyatt members and owner satisfaction sentiment. They all outperformed internal expectations and exceeded 2019 levels in every one of these dimensions.

Given all that we accomplished in 2021 and the momentum we have built, I remain very optimistic about this year. Despite Omicron having some impact on performance early on, we've seen demand remain resilient with an unwavering desire to travel and connect from leisure and business travelers alike. Looking forward, I'm thrilled that Apple Leisure Group has expanded our portfolio by 100 resorts as of today. The response from guests, owners and colleagues continues to be exceptional and key metrics that drive performance are pacing well ahead of our expectations.

Let me share some ALG highlights with you. First, net package RevPAR at AMR Collection hotels over the back half of 2021 was above 2019 levels for comparable properties. Second, surging demand at AMR Collection hotels translated into a record level of guests becoming members of AMR's Unlimited Vacation Club referred to as UVC. Approximately 28,000 new contracts, including upgrades, were signed in 2021, a new record for the company.

Third, the ALG Vacations business improved profitability and margins through robust business and technology optimization that materially advance the quality of revenue and service provided. All this activity translated into a 2021 financial result for ALG that was 50% ahead of our underwriting expectations for the year and serves as the basis for our optimism on where the business is headed.

Looking at the two months of results for ALG as part of Hyatt; the segment contributed $4 million in adjusted EBITDA and generated approximately $40 million of operating cash flow excluding the Vacations business. The Vacations business experiences seasonal net working capital fluctuations that are at times material. It's important to note that the large difference between cash flow and adjusted EBITDA is primarily due to the timing of the recognition of GAAP revenue and GAAP expense for UVC memberships. When assessing ALG performance, it's critical to include the net change in deferred revenue and expense which we call net deferrals and the change in net financed contracts. Joan will expand on these elements in a moment and we have further described these factors in the earnings release and supplemental presentation found on our website.

During the two month period, in addition to ALG's $4 million contribution to adjusted EBITDA, net deferrals increased $19 million and net financed contracts increased $8 million. We assess financial performance and base our incentive compensation program for our colleagues on the sum of these three items: adjusted EBITDA which was $112 million in the fourth quarter; net deferrals which was $19 million in the fourth quarter; and net financed contracts which was $8 million in the quarter. This sum aligns with the economic value creation of the business, tracks more closely with the cash flow generation of the business and provides more meaningful period-to-period comparisons.

Looking to 2022, we're excited about building the momentum that we see ahead of us. Despite the challenging environment in January, net package RevPAR for comparable ALG resorts in the Americas was 85% of 2019 levels. Further, as we look at gross package revenue booked for future periods, it accelerated from approximately 93% of 2019 levels in January to more than 135% of 2019 levels month to date through mid-February. Our strong positive sentiment is also bolstered by increased airlift capacity which is up 22% in Cancun in the first quarter, with capacity originating from the United States up nearly 50%.

Lastly, I want to briefly touch on the significant progress we've made integrating ALG in the two months since acquiring the company. Our cultural similarities have allowed us to drive value-creating initiatives collaboratively and very quickly, including aligning our development teams to collaborate on new leads and deals across regions; leveraging Hyatt's terms with OTAs and third parties to improve the cost of distribution for ALG owners; identifying opportunities for talent mobility across brand organizations; and lastly, planning to expand our World of Hyatt member benefits for members staying at AMR Collection hotels starting this summer in the Americas, with Europe to follow. We've achieved significant progress in a short amount of time with many more milestones to come. We're thrilled with the benefits we will deliver in the near term for our colleagues, guests and owners and continue to develop areas of opportunity to drive value into the future.

Turning to the latest business trends for our legacy Hyatt business; comparable system-wide RevPAR continues to recover at an encouraging pace, reaching 74% of 2019 levels in the fourth quarter as compared to less than 70% in the third quarter. We're encouraged that rates remain only slightly down compared to 2019 with the RevPAR differential almost entirely driven by lower levels of midweek occupancy. The strong leisure transient demand we've been experiencing shows no signs of dissipating. Leisure transient RevPAR reached 2% above 2019 levels on a system-wide basis in the fourth quarter despite travel restrictions that remain in place for many countries.

We are also encouraged by the improvement in group revenue in the fourth quarter which improved 18% from the third quarter and actualized at nearly 50% of 2019 levels, with the month of December eclipsing 72% of 2019 levels. It's remarkable that our Americas full service managed hotels had more revenue from groups that booked and stayed in the fourth quarter as compared to the same period in 2019. This just speaks to the pent-up demand that exists to convene at our hotels and we remain confident this trend will continue into 2022.

As for business transient, demand also continues to strengthen with revenues improving to approximately 44% of 2019 levels in the fourth quarter compared to 38% of 2019 levels in the third quarter on a system-wide basis. Small and medium enterprise business travel continues to lead the recovery and we also saw steady progress with our larger group accounts which were closer to 40% of 2019 levels for the quarter. We expect these levels to continue to improve as more employees return to the office and travel velocity increases.

From a geographic perspective, the United States experienced notable momentum in the fourth quarter, improving from just over 70% of 2019 levels in October to almost 95% in December, primarily driven by outsized leisure demand. Additionally, we are experiencing a more diverse recovery in many parts of the world. We had record performance in the Middle East in the fourth quarter, primarily driven by demand from Expo 2020 in Dubai. We're also thrilled to see regions that had only seen a limited RevPAR recovery start to progress more meaningfully in the fourth quarter, including India which reached nearly 90% of 2019 RevPAR levels in December; and Southeast Asia, where we saw the first period of notable RevPAR acceleration since the pandemic began, all due to easing travel restrictions.

As we look into 2022, January lagged the RevPAR levels we experienced in December, primarily driven by a negative impact from the Omicron variant. System-wide RevPAR in January finished at 63% of 2019 levels as compared to 84% in December. For our Americas managed hotels, it's notable that almost 2/3 of group cancellations for 2022 have been limited to and exclusively for the months of January and February with nearly 60% of those groups rebooking for a date later this year.

Bookings for March and onward continue to grow at a strong pace. In fact, gross new group bookings in January for events that will be held this year were up 14% versus the same comparable period in 2019. And our full year group pace which includes the headwind in January, is at 77% of 2019 levels with 20% more tentative business than at this time in 2019. Overall, we're seeing strong booking activity across the majority of our key geographic areas for both group and transient and anticipate a significant RevPAR acceleration in the weeks and months ahead.

Turning to growth; I'm pleased to report that we have in 99 legacy Hyatt hotels in 2021 a new record which contributed to our legacy Hyatt net rooms growth of 6.1%. When factoring in the 32,000 rooms from our acquisition of ALG, our total Hyatt net rooms growth jumps to 19.5% for the year.

In our supplemental investor presentation, we highlight on Slide 9 how our strong organic growth paired with the recent acquisitions of Two Roads Hospitality and ALG have truly transformed the quality of our portfolio with a much greater mix of luxury, lifestyle and resort offerings in a very short period of time.

Our total room count grew by nearly 100,000 rooms, just over 53% growth in only four years. What's particularly important is the composition of the growth. As we highlight on Slide 10 of the supplemental investor presentation, if you compare our portfolio today to our portfolio four years ago, you'll note that we have doubled our number of luxury rooms, we have tripled the number of lifestyle rooms and we have tripled the number of resort rooms.

Our growth has resulted in notable gains in global market share in key areas. For example, our portfolio now represents 18% of global luxury branded rooms in resort locations, the largest in the world; 13% of global luxury branded rooms across all locations which makes us the second largest in the world. I am very proud to share that over 40% of our global portfolio is either a luxury hotel, a lifestyle hotel or a resort or a combination thereof, providing a truly differentiated portfolio both in terms of quality and variety.

Our World of Hyatt members have taken notice. The areas in which we have expanded our portfolio are precisely where demand is most pronounced for our guests, particularly our most loyal members. The World of Hyatt program has nearly tripled in the number of members since 2017 to over 30 million members today. We anticipate we'll continue to see significant growth of new members as we continue our industry-leading growth and introduce the World of Hyatt program to millions of ALG guests, providing incremental benefit to AMR owners. The benefit to owners of World of Hyatt expansion is compelling as the total cost of distribution for World of Hyatt members booking directly through Hyatt's channels is materially lower than the cost of third-party channels.

We're thrilled with the transformation and the mix of the rooms in our portfolio open today and we've also significantly expanded our pipeline over this time frame. In the fourth quarter, our legacy Hyatt Hotels pipeline grew to 104,000 rooms. Additionally, we added 9,000 rooms through the ALG acquisition, resulting in a total pipeline of 113,000 rooms, a 12% expansion over last year and a more than 60% expansion since 2017.

Finally, I want to provide a brief update on transactions before turning it over to Joan. As I mentioned, we have a very active year in 2021, realizing $630 million of gross proceeds from owned asset sales. In addition to the sales of wholly owned assets, we had a very active quarter in our joint venture portfolio. In the fourth quarter alone, we sold our joint venture ownership interests in five hotels, four of them being select service properties, for an average price of $380,000 per room, resulting in $83 million of net proceeds to Hyatt. And we retained a long-term management or franchise contract for each hotel.

In addition to the activity outlined above, I'm pleased to announce that we are in advanced stages for the disposition of two other wholly owned hotels for an aggregate amount of approximately $270 million, implying a multiple of approximately 15x 2019 EBITDA levels. Should we successfully close these two transactions, they will mark early and solid progress toward the $2 billion asset sell-down commitment we announced in August. We look forward to updating you on the progression of these sales and future plans relative to our sell-down program.

I'll conclude my prepared remarks this morning by reiterating my gratitude to the Hyatt family and enthusiasm for the direction we're headed. We made significant progress in multiple areas in 2021 and Hyatt is a much stronger and more agile company today.

I'll now turn it over to Joan to provide additional details on our operating results. Joan, over to you.

Joan Bottarini

Thanks, Mark and good morning, everyone. My commentary today will cover consolidated financial results, key drivers of performance and overview on ALG and expectations I can share for 2022. Before I go through the results, I want to remind everyone that Hyatt's fourth and full year 2021 financial results include two months of ALG performance.

Late yesterday, we reported a fourth quarter net loss attributable to Hyatt of $29 million and a diluted earnings per share loss of $0.26. On an enterprise basis, we assess Hyatt's financial performance on the sum of three items: adjusted EBITDA which was $112 million in the fourth quarter; net deferrals which was $19 million in the fourth quarter; and net financed contracts which was $8 million in the fourth quarter. Both our legacy lodging and real estate businesses continue to accelerate, driven by strong leisure demand and improvements from business transient and groups.

While the RevPAR environment strengthened relative to the third quarter, adjusted EBITDA stayed approximately flat driven by several factors. First, we had $6 million of ALG-related integration costs in the fourth quarter, representing a $4 million increase from the third quarter. For the full year, we had a total of $8 million of ALG integration costs, consistent with the guidance we provided on our last earnings call. Second, the sale of Hyatt Regency Lake Tahoe and Alila Ventana Big Sur resulted in $13 million less in adjusted EBITDA contribution in the fourth quarter as compared to the third quarter. It's notable that the owned and leased hotels segment adjusted EBITDA grew by $6 million as compared to the third quarter despite this headwind. Third, we had an increase in certain costs, including our bonus accrual related to outperformance in several of the key metrics that Mark covered.

Combined, these factors materially impacted adjusted EBITDA in the fourth quarter relative to the third quarter in an amount in excess of $25 million. This impact was nearly all offset by growth in legacy Hyatt base, incentive and franchise fees of approximately 13% and strong owned and leased margins of 24.8%. In fact, the margin performance represents a 10% -- 10 basis point increase over 2019 margins despite RevPAR that was 24% lower on a comparable basis. Overall, we're very pleased with the momentum of our legacy Hyatt core business recovery and remain confident in the trajectory, especially given the levels of booking activity in recent weeks that Mark just mentioned.

Turning to ALG; the performance in 2021 and the strong momentum into the final month of the year was exceptionally strong. Since this is the first quarter we're reporting ALG results as part of Hyatt, I want to take a moment to comment on how ALG is reported in our financial statements, including the new line items we've added. I'd also reiterate that the supplemental presentation we posted to our website provides additional information regarding financial performance for ALG and is intended to provide expanded details for financial modeling. We are reporting ALG as one segment, inclusive of it's two main lines of business: first being AMR and UVC which are tightly integrated; and second being ALG Vacation. To incorporate ALG's business lines into our consolidated results, I'll highlight several changes from the prior quarter.

First, since AMR and UVC are tightly integrated and generate fee-based earnings, they are collectively presented on existing line items consistent with legacy Hyatt financials. Management, franchise and other fees include the management fees from the AMR management business. SG&A includes overhead and related expenses from AMR, UVC and general corporate overhead. Other direct revenue and other direct costs are primarily driven by fee revenue and variable costs associated with UVC. Second, we added both a revenue and expense financial statement line item called distribution and destination management. These two reflect all of the revenues and expenses associated with the ALG Vacations distribution business and the destination management activities.

As Mark mentioned, looking at the two months of results for ALG as part of Hyatt, the segment contributed $4 million in adjusted EBITDA and generated $40 million of operating cash flow excluding cash flows from the Vacations business. The large difference between the $40 million of cash flow generation and $4 million of adjusted EBITDA from ALG is due to GAAP revenue and expense recognition requirements. The result is a growing balance of deferred revenue and expense on our balance sheet which represents adjusted EBITDA that will be recognized in the future in addition to an increase in net financed contracts which represents future cash payments to Hyatt from members who financed a portion of their membership fee.

During the two month period of November and December, net deferrals increased $19 million and net financed contracts increased $8 million. The changes in net deferrals and net financed contracts are critical to fully assessing in a given period as each new contract signed generates a negative adjusted EBITDA contribution in the period signed. This is further illustrated in the supplemental presentation we posted, highlighted on Slides 22 through 24.

Let me take a minute to walk you through the mechanics of the UVC membership structure. At the time of signing, a significant portion of cash is received in exchange for a multiyear membership. The accounting for the signed contract reflects a material timing difference between the GAAP recognition of revenue which is recognized over the life of the contract and GAAP recognition of expense which results in a significant amount of expenses recorded in the period incurred, a material amount of which are incurred upon signing of the contract.

For these reasons, for the ALG segment, we assess performance through the sum of three items: adjusted EBITDA, net deferral and net financed contracts. The sum of these amounts for the ALG segment in the fourth quarter was $31 million and represents our measure of financial performance for the segment. This combination provides period-to-period comparisons and align with the economic value creation of the business and represents the cash flow generation of the business. We've provided a new schedule on Page 3 of the earnings release schedules for ease of reference of net deferrals and net financed contracts.

Lastly, as it relates to key operational measures that drive ALG financial results, I want to share three important metrics that we'll continue to provide in our operational updates on a quarterly basis going forward.

First, similar to how RevPAR is the primary driver of our legacy Hyatt lodging business, net package RevPAR is the primary driver of performance for AMR fees. For the two months of ALG ownership in the fourth quarter, net package RevPAR in the Americas was $188, up 7% from the comparable period in 2019, driving $21 million in total AMR management, franchise and other fees. Second, UVC contract signing is a key operational metric as it directly drives the combination of other revenues, net deferrals and net financed contracts. Additionally, UVC contract signings also drive other direct costs and deferred expenses. For the two months of ALG ownership in the fourth quarter, approximately 3,900 new UVC contracts were signed. Third, guest departures is the key metric that drives distribution and destination management revenue and expense. For the two months of ALG ownership in the fourth quarter, 373,000 guest departures drove $115 million of distribution and destination management revenue and $112 million of expense.

The ALG ecosystem serves high-end guests and their leisure travel needs. The momentum ALG is experiencing is fundamentally driven by growing leisure demand which is a segment that has been the clear leader in recovery with proven durability to prior cycles as well. Additionally, through ALG's unique distribution capabilities with an end-to-end booking process, coupled with strong operational execution and a seamlessly integrated experience with AMR and UVC and destination management services, the ALG platform drives significant satisfaction for guests and very strong financial returns for owners. This has resulted in a quickly expanding portfolio, increasing from 10 to 99 properties in just over 10 years and 100 properties as of today. The vast majority of new properties represent growth from the financial success of the existing owner base with over 80% of the hotels in the AMR Collection portfolio owned by a multi-property AMR Collection hotel owner.

ALG posted very strong financial results in 2021 despite a first half that was negatively impacted by travel restrictions and lower demand. As we look to 2022, our positive sentiment is reinforced by the significant expansion of the AMR Collection over the past two years, coupled with strong leisure demand trends. Gross package revenue for all Americas resorts is pacing over 20% ahead of 2019 levels for the second quarter and we expect our significant expansion in Europe over the past two years to drive strong results in the third quarter. Lastly, the potential for revenue synergies give us optimism as more of our guest base is introduced to ALG brands.

I'd like to also provide an update on our liquidity and cash. As of December 31, our total liquidity, inclusive of $1.2 billion of cash, cash equivalents and short-term investments and $1.5 billion borrowing capacity on our revolver, was approximately $2.7 billion. During the quarter, we completed the acquisition of ALG and at the end of the year, had $4 billion of debt outstanding. While we have no maturities in the next 12 months, we do have an option beginning in the fourth quarter of 2022 to pay down a portion or all of the principal balance of the notes issued in 2021. We expect the net proceeds from our asset disposition program will largely be utilized to reduce a portion of these notes.

Finally, I'd like to share some expectations regarding 2022. In regards to adjusted SG&A, we expect total adjusted SG&A for 2022 to be approximately $460 million to $465 million excluding any bad debt expense. The breakdown of this amount is as follows. Legacy Hyatt SG&A is expected to be approximately $300 million to $305 million and includes $25 million to $30 million of onetime integration expenses related to ALG. When excluding these onetime expenses, legacy Hyatt SG&A is approximately $275 million or 20% below our pre-pandemic run rate adjusted SG&A when adjusted for inflation.

ALG SG&A is expected to be approximately $160 million and includes all AMR expenses, corporate overhead and UVC overhead expenses. As a reminder, variable UVC expenses are reported within other direct comps and all of the Vacation business expenses are reported within distribution and destination management expenses due to the highly variable nature of these costs. We expect capital expenditures for 2022 to be approximately $215 million which includes $190 million for legacy Hyatt investments and $25 million for ALG investments. The legacy Hyatt estimate is lower by 40% compared to the average capital expenditures in 2018 and 2019. As for ALG, the modest capital expenditures are primarily related to the Vacations business and highlights the capital-light nature of ALG and the strong free cash flow it generates.

Lastly, we expect to deliver another strong year of net rooms growth in 2022. While we recognize that supply chain delays could play a role in the timing of openings, we expect to deliver net rooms growth of approximately 6% in 2022. This expectation implies that we will end the year with just over 300,000 rooms in our system, a notable milestone considering we reached 200,000 rooms just a little over three years ago.

I'll conclude my prepared remarks by saying that we're very pleased with our fourth quarter and full year combined Hyatt and ALG financial results and the performance, integration and momentum of ALG. 2021 was a transformative year for Hyatt. We've emerged from a very disruptive period in a position of tremendous strength and we are fundamentally stronger, more resilient and better positioned than ever before. We're proud of the accomplishments we have achieved to advance our long-term strategy and the value creation that ALG has brought to Hyatt and we're excited for 2022 and beyond.

Noah Hoppe

Before we take your questions, we would like to take a moment to address some of the follow-up questions we have already received, including those related to the accounting considerations for the UVC business that is part of the ALG segment.

Mark, over to you.

Mark Hoplamazian

Thanks, Noah. Look, first and foremost, I just want to say that we are thrilled with the performance in the quarter but also what we're seeing in the -- what I will now describe as a growing period, what we can call post-Omicron booking levels. It's giving us tremendous optimism as we look into this year. So our core legacy Hyatt business is clicking on all cylinders. The margins that Joan talked about and our overall financial results are very, very strong and we've been able to continue to grow or perform at a relative advantage to our principal competitors.

Secondly, I think Joan perfectly laid out the key unique attributes of ALG: serving leisure demand which everyone knows has been a key driver. The high-end customer base that they've got is right in line with ours. And the reason that they performed so well and generated such great returns for owners is that it is an integrated platform. That's what we acquired. We acquired an integrated platform anchored by and led by the AMR Collection of hotels. So that's a quick commentary.

Now numbers; our measure of financial performance for the fourth quarter of 2021 is $139 million. I want to state that number clearly because it is the sum of adjusted EBITDA of $112 million, the net -- and adding to that the net deferrals amount of $19 million and the financed contracts -- the change in financed contracts of $8 million. Those last two items both relate to UVC which is one component piece of the ALG business. I'm going to turn it over to Joan in just a minute for her to explain why there are these differences. So again, our measure for financial performance for the company is $139 million for the fourth quarter.

Second, for the ALG segment for the fourth quarter, our assessment of financial performance is $31 million which is the summation of the $4 million of adjusted EBITDA, plus the $19 million of deferral amounts -- net deferrals and the $8 million in net financed contracts. Similar mathematics, same elements being added together. There are only three numbers, it's not very complicated. But it relates to the accounting that underlies the membership fees that we're collecting and how they're booked under GAAP which Joan will explain in a minute.

The last point that I'd like to make in terms of our assessment of financial performance is $40 million in cash. So AMR and UVC together generated $40 million of operating cash flow in the fourth quarter during our ownership. That's a significant amount and it is significantly higher than the adjusted EBITDA of $4 million that we noted. And so that is a clear demonstration of what -- the economic power and delivery of the businesses.

The reason we excluded the Vacations business from the operating cash flow statistic is because the Vacations business has embedded in it a very high level of net working capital -- I should say a low level of net working capital but a significant measure of net working capital that changes, fluctuates seasonally and sometimes those fluctuations are material. And there were material fluctuations. It's a distraction because you receive cash during certain periods of time and you pay out cash during other periods of time. And over the course of the year, it nets out to a modest change in one direction or another.

But I really wanted to be clear since there were a lot of questions that came in trying to interpret what the total financial measure of performance was. And just to reiterate, for the segment for the quarter, it was $31 million. And for the company for the quarter, it was $139 million.

So, let me turn it over to Joan to just briefly explain why we are taking this much time. And I realize that UVC is only one piece of this business. It's fully integrated into the rest of the company but it does drive these accounting differences.

Joan Bottarini

Thanks, Mark. Yes. I just wanted to expand a little bit -- take a moment to expand a little bit on the accounting and the disclosures. The membership club, it's similar to other subscription models that you might be familiar with where a fee is paid to gain access to a benefit. And in this case, the access is being provided by the Americas AMR resort. And while the accounting for the club is somewhat similar to the timeshare business in the lodging industry, I want to be very clear that the club is not a timeshare business. There's virtually no capital required from Hyatt and no points are purchased. It is a fee-based membership club paid by members and entitles them to access benefits that are accrued as fees are paid over time.

In our industry, the timeshare comparison is helpful for those of you that cover timeshare but it's a fundamentally different model. And we further explained the accounting and the connection between cash as a very important measure that relates to the combination of these three items that we report and the difference in GAAP accounting which is where the expenses -- and I've described this in my prepared remarks, where the expenses are front-loaded and revenue is recorded and recognized over time. So again, this is on Pages 22 to 25 of the supplemental presentation. We provided more information there.

So with that, I'll turn it over to Rob to take our questions for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Stephen Grambling from Goldman Sachs. Your line is open.

Stephen Grambling

Hi, good morning. Thanks for all the accounting color which I guess can be summed up as following the cash. As we think about the $174 million in economic EBITDA at ALG this year, could you help frame the EBITDA contribution between the two kind of major segments, where the outperformance versus your underwriting has been most pronounced? And then also, as we think about that strong forward-looking trends that you cited for 2022, how does that typically flow through to EBITDA and free cash flow for this segment?

Mark Hoplamazian

So Stephen, thank you very much for the question. If you've got the deck that we posted, candidly, there's a first half, second half comparison on Page 15. That's probably a good place to start in terms of what the composition of the amounts are but you're asking a slightly different question with respect to where it came from across the various business lines. So we described -- as Joan described, we've got two business lines within ALG. One is AMR and you can see that accounts -- accounted for roughly 70% of the total; and the Vacations business which accounts for roughly 30% of the total. The total amount of, to use your terminology, economic EBITDA for the second half is that -- it was $125 million of total economic EBITDA for the second half.

Let me just say that, I mentioned it in my script, the AMR performance, the hotel performance -- and actually, all three parts of the business performed far in excess of what we had underwritten because the acceleration of leisure demand and then the opening up of Europe which led to an extended season in Europe and some of the longer-term work that has been done on the technology platform and the operating metrics -- or operating practices within Vacations all came together this past year. And we're running significantly ahead of our underwriting. And so we're thrilled about that. We see momentum continuing into this coming year. And by the way, because I want to present a balanced picture, part of the reason why the second half of last year was such a pronounced result is because, frankly, Americans couldn't go to Europe for holiday. So a lot of them chose to go to the Caribbean and Mexico. By the way, that means a lot more of them discovered our resorts and that's reflected in the UVC membership increase which was really significant. And the second thing that's true is that the cruise lines were not operating.

So yes, we will see more European travel this summer than we did last. And yes, at some point, sailings will begin again. But I really feel strongly that the exposure to a bigger guest base, especially to Hyatt's legacy guest base, is going to really continue to drive demand. And we're seeing booking levels that are just remarkable. So that's the story line.

With respect to the translation of EBITDA into cash, the answer is it's extremely high. There's really all of the working capital changes which we will have on a seasonal basis for the Vacations business. There's really no material change in -- there's a very stable net working capital picture for AMR and UVC. And the translation of economic earnings -- economic EBITDA, to use your terminology, into cash is very high. So, we currently stated that the company -- ALG generated $40 million of cash. And we told you that our assessment of the economic result is $31 million. That $10 million -- $9 million difference there has to do with some timing issues and a little bit of working capital.

But overall, over time, those two numbers will track very, very closely to one another. We've looked at that and we're confident that that's the case which is why we feel so strongly that it's a good representation of the actual economic performance and a good proxy for cash flow.

Stephen Grambling

That's all very helpful. Maybe one unrelated follow-up. Given the tripling of the World of Hyatt members, I think you said 30 million and potentially even sharper growth going forward, how are you thinking about other forms of monetizing this cohort, whether through partnerships or a new kind of co-branded credit card program? Thanks.

Mark Hoplamazian

Yes. First of all and I'm not -- I'm going to say this not being persnickety, I promise, Stephen, we don't think of monetizing our members. We think of caring for them. And I mean that in a sincere way in the sense that our belief is that we don't want to objectify our relationships with our most important members and guests. The UVC members and the World of Hyatt members are cherished by us because they have demonstrated their loyalty by committing their pocketbooks. And what we're trying to do and what we've successfully done both with respect to the Two Roads acquisition and ALG is provided high-quality additional opportunities for them to travel in our system. We expect to see a significant growth in market share -- share of wallet, if you will, for both. And we're currently working on how we can utilize the World of Hyatt program to enhance the value proposition for the UVC members within the ALG network and enhance the World of Hyatt proposition for existing members by plugging into ALG's AMR Collection so -- because the quality of the properties is very high and we think that there's going to be growth in membership.

The growth in membership which is 18 -- for UVC, it's been an 18% compounded level and these data -- over the past five years. These data are on Page 18 of the supplemental deck. And World of Hyatt has tripled, as we said. So we've got tremendous growth in member bases. And UVC -- a version of UVC is going to be developed for Europe. It doesn't exist in Europe at this time but World of Hyatt does. So we see a lot of network effect that we are going to be able to bring to bear and make this more of a global proposition as we move forward.

Stephen Grambling

Thanks a lot. I'll get back in the queue.

Mark Hoplamazian

Thank you.

Operator

Your next question comes from the line of Patrick Scholes from Truist Securities. Your line is open.

Patrick Scholes

Hey guys, good morning, everyone. A question regarding what seems to be a large step-up in SG&A. And I hope I got my numbers right here. Roughly going -- on the core legacy Hyatt business, going from roughly 250 to 300 or about a 20% step-up. Can you -- if I got that right, can you explain that large step-up? Thank you.

Joan Bottarini

Sure, Patrick. I can unpack our SG&A guidance which in total, that I reported in my prepared remarks, was $460 million to $465 million expected for 2022. And as you pointed out, legacy Hyatt is estimated between $300 million to $305 million and includes onetime integration costs for ALG. So if you exclude those costs, you arrive at $275 million for legacy Hyatt which does include some investments for 2022 but remains 20% below our pre-COVID expense base, if you exclude inflation in that analysis. And we've previously communicated that we remain intensely focused on retaining savings on our pre-COVID expense base in the range of about 15%. So we're definitely on track with respect to our expectations for 2022.

I'd just point out, too, the other element there is -- in the total is the expectations for ALG which is $160 million of the $460 million to $465 million total SG&A guidance. And we've made the decision -- extremely important to invest in the business. It's performing extremely well. It's growing rapidly and there's clearly significant momentum that we've described in our prepared remarks. So we are -- we will continue to make investments in that business as it continues to grow.

Patrick Scholes

Okay. Just to follow...

Joan Bottarini

Sure. Go ahead.

Patrick Scholes

Sorry, continue. Go ahead.

Joan Bottarini

Yes. I was just going to point out that some of the costs associated with ALG are related to the membership club program, as I described and they're paid back to owners. So the integrated nature of the platform is evidenced even here in the cost base that we manage to support our owners to drive more profit. Go ahead.

Patrick Scholes

Okay. Could I ask you -- so a follow-up question. In the $460 million to $465 million adjusted SG&A guide, there are onetime nonrecurring costs in that number, correct, of approximately $25 million? Am I correct there?

Joan Bottarini

25 to 30 -- yes, absolutely. $25 million to $30 million is our estimate for onetime integration costs for ALG.

Patrick Scholes

Okay. Thank you for the clarity on that.

Joan Bottarini

You're welcome.

Operator

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

Thomas Allen

Thank you. Stepping away from ALG for a second. Your own margins were really impressive at 25% in the fourth quarter. Can you just talk about kind of the drivers behind that? And then how should we think about modeling the owned and leased segment on a go-forward basis? Thanks.

Joan Bottarini

Sure, Thomas. This is actually the second consecutive quarter that our margins on our owned and leased portfolio have exceeded 2019 levels on a comparable basis. And it's intense focus from our managers. Clearly, they're doing what they can to yield revenue on the top line, particularly rates and driving great flow-through in a difficult environment. Some of the improvements are temporary. Relative to mix of the earnings that we're generating, the revenue that we're generating, there's lower F&B mix relative to stabilized levels. So that's helping a bit. And the labor situation, we're still at about -- I think it's about 90% of target levels at the property. So that is helping but there's absolutely permanent improvements that we anticipate.

We've guided before about 100 to 300 basis points on a stabilized basis. And we still feel really good about that estimate given what our managers have been able to achieve. We've talked about some of the items that are driving that between technology enhancements and just really intense focus on having the right people in the right place at the right time and focusing on productivity as we add back staffing to make sure that we're delivering the service that we need to and our guests expect.

Mark Hoplamazian

And we're leveraging more digital investments that we made over the course of the pandemic which we did not slow down. We kept our foot on the gas pedal with respect to evolving our digital platform and that's also helping to yield more efficiencies. We frankly had better guest experience and a better colleague experience along the way.

Thomas Allen

That's helpful. And then going back to ALG. Based on your commentary when you announced the deal, we generally thought that 2022 [ph] contribution will be somewhere between the 2019 of about $170 million and the stabilized of about $225 million for 2022. Given 2021 outperformed, should we expect you to kind of get closer to that stabilized number in 2022? Or how should we think about it? Thank you.

Mark Hoplamazian

Yes. I mean look, the performance and the momentum has been remarkable. And the unit growth or the cumulative growth of growing the system is really taking hold. The ramp period for a lot of the ALG hotels was actually quite fast and part of that has to do with the integrated nature of having ALG Vacations. But also, UVC members are the first ones to book into new properties. So the network effect as you grow is you bring people who want to experience those new properties as part of the benefits that they have signed up for and paid fees for. And so there's a mutually beneficial virtuous circle of value that's being created here. So we get faster ramps, we've got booking momentum that is significant and we've got unit growth over the course of the year. So, I mentioned earlier we ended the year 50% ahead of our underwriting for '21. And I would just say to you that if the trends that we see in place right now continue, then we will achieve that low double-digit multiple that we talked about at the inception well before the end of 2023. And exactly when that comes, I can't comment on yet because we need to see how things evolve.

I am counting on, by the way, Europe having a regular summer. Last year, Europe did not have a regular summer. It was largely compressed into about 2.5 months or 2 months really. So there are some assumptions built in. But my answer to you is yes, we are on track to deliver our targeted valuation multiple ahead of the end of 2023.

Thomas Allen

'23 or '22, Mark? This year or next year? Sorry.

Mark Hoplamazian

No, we initially said that by the end of '23, we would get to a low double-digit effective multiple paid. And I'm saying it could be well before the end of 2023. Whether it actualizes in full by December 31, 2022, I can't really say yet. But I can tell you that if the trend continues and the momentum continues, then we will.

Joan Bottarini

You're really speaking of a 12-month annualized multiple.

Mark Hoplamazian

12-month annualized, yes, of the -- of how we measure for the financial performance. Is that clear, Tom?

Thomas Allen

Yes, make sense. You're trying to get ahead of your original expectations. Perfect. Thank you.

Mark Hoplamazian

Well ahead. Yes, well ahead.

Operator

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

Smedes Rose

Hi, thanks. I was just wondering if you have any updated thoughts on capital return at some point in 2022 just given, it sounds like, your cash flow profile is going to be significantly enhanced by this acquisition. So just any updated thoughts there?

Mark Hoplamazian

Let me just make a quick comment on transaction environment and then I'm going to turn it over to Joan. So a little bit on the sources. First of all, we just went over in great detail why we're generating cash. So the cash flow generation for the company is going to be very robust. Secondly, the transaction environment is healthy. But honestly, I see an even better environment as we move further into this year. And my confidence in that is primarily driven by what I'm seeing in group bookings and how they're evolving. And our connections to and contacts to travel managers and meeting planners all tell me that we're going to see growing momentum over the course of the year which means that we will have a broader array of properties that we own that we would go to market on as the year unfolds.

So I think we're going to be generating, in addition to operating cash flow, additional proceeds. And Joan will now explain how we're thinking about the priorities of what we're going to do with the money.

Joan Bottarini

Right. So as we've made each of our commitments, our sell-down commitments, we have asserted and committed that the proceeds from those sales would be used to reinvest back in the company. Because of the timing of the ALG acquisition, we took on some incremental debt to pay for the acquisition. So what we have to turn to first is to ensure we're doing some deleveraging towards the end of this year which I commented on in my prepared remarks. So, we will use some of that excess cash and those proceeds to delever and this is very consistent with our commitment to retaining investment-grade status. And that's what our near-term plans are. Beyond that, we'll keep you posted.

Smedes Rose

Okay, thanks. Okay. And then I was just wondering, could you just say what is the average price of the contract or the membership when someone buys into your -- to AMR club?

Mark Hoplamazian

Thanks for that. The answer is, first, you need to understand that there are multiple tiers within UVC. And so the average is taken across a number of different price points that provide very different types of benefits to their members. If you look back and you try to take an average over time which has moved because there have been ebbs and flows in terms of what level of memberships have been sold -- have been more popular in certain periods of time, the averages have run between $10,000 and $15,000 per contract. And so maybe if you think about it in that range but imagine that the midpoint of that is probably a good rough estimate for what the value of the contract would be running. But it's going to vary in that range which I know it's a broad range but it just -- it depends on what the demand is at the different tiers at a given point -- in a given quarter or in a given year, yes.

Smedes Rose

And then the vast majority are financed. So I'm just wondering, what's the kind of spread to you on what your -- what the customer is paying in interest versus, I guess, your -- would you just look at like highest -- sort of average cost of debt? Or how does that work?

Mark Hoplamazian

I -- first of all, there's a dynamic which is a down payment that runs from 30% to 50% on average. And then the actual payoff of the remainder is, in all cases, less than four years. But really, the bulk of it is repaid in the first couple of years that follows. And there is an interest factor that apply to the net financed contracts. I don't know -- I can't say to you what the exact amount is.

Smedes Rose

Okay, thank you.

Mark Hoplamazian

Operator, can we take our last question?

Operator

Certainly, your last question comes from the line of Chad Beynon from Macquarie Group. Your line is open.

Chad Beynon

Hi, good morning, thanks for taking my questions. One more on the ALG accounting that we're receiving from clients. As we look at Slides 14 and 15, you broke out the EBITDA, the deferrals, the financed portion. On a percentage basis on, I guess, 2021, the back half and then for the quarter, it looks like EBITDA is kind of 15% to 20%, the deferral is 50-ish percent and then the financed is the remainder. You gave us the waterfall chart later in the deck. But as we think about that breakdown, roughly like 20% EBITDA, 50% deferral and then the remainder financed, is that how this could look over the next couple of years just given that people are continuously investing or joining the membership club? Just trying to get some more color on that breakdown. Thanks.

Mark Hoplamazian

Yes. So thank you for that. Look, there are a couple of factors here. First, recognize that the growth of the AMR Collection which is a principal driver of the growth of UVC memberships, has been very high. The portfolio itself has grown enormously and the compounded growth of UVC memberships has been 18% over the last five years. So when you're in a growth period like that, it actually has the effect of, effectively, what I would describe as pulling down the adjusted EBITDA figure and having relatively higher deferrals and net financed contracts in relation to that. It's really difficult to attribute the deferrals and the net financed contracts and say, "Oh, well, that's UVC as a business" because UVC exists as a result of AMR existing. And it's fully -- it's sort of like -- think of it as a distinct channel of distribution but the memberships themselves are actually derived from the network of AMR. So we look at the AMR Collection and the UVC program as integral parts of one business. And so I would caution you not to think about the deferrals and the net financed contracts as being "UVC."

I think you have to look at the totality of the earnings. We've already said that it's roughly a 70-30 split between AMR and UVC as one line of business and Vacations as another. And I think that that's true. But the specific answer to your detailed question about the composition and how adjusted EBITDA shows up is driven by the fact that with growth, you actually post negative adjusted EBITDA for every contract that you're signing which pulls that piece of the equation down. I hope that was clear.

Chad Beynon

Yes. Thank you, Mark. I appreciate that.

Joan Bottarini

For GAAP purposes.

Mark Hoplamazian

For GAAP purposes. Thank you, Joan.

Chad Beynon

Okay. And then last question on the core business. The monthly and even weekly RevPAR recovery that you gave us was really helpful. I think you said December was up to 84% of pre-pandemic levels. I know there's a lot of moving pieces and you mentioned that March hasn't had cancellations. And I think historically or seasonally, that's a strong leisure period with spring breaks and the like. Is there any reason or anything that informs you that March couldn't get back to these December levels based on what you're seeing, based on what we're seeing in vaccination and just where the group and BT is going at this point?

Mark Hoplamazian

There's no reason, no reason whatsoever to think that we're not on that trajectory. I'll tell you -- I'll just give you a real-time data point as we sit here right now. Presidents Day weekend which is just ahead of us, up double digits relative to 2019 in our legacy Hyatt portfolio. So I would just tell you that Omicron considerations have dissipated as quickly as they rose at the inception. And we keep talking about this term pent-up demand. It's just a -- it's an enduring level of people who really feel compelled to get out, to engage, to connect. And we're seeing it come up data point after data point after data point. So, that's just -- I know it's one fact and an anecdotal one at that but it is real time. It's like right upon us this coming weekend and that's where we stand.

Chad Beynon

That's great. Thank you very much. I appreciate it.

Mark Hoplamazian

Okay. Thanks, everybody. Thanks for joining today.

Operator

This concludes today's conference call. Thank you for your participation and have a wonderful day. You may now disconnect.