Earnings Call Transcript - H Q4 2021

Operator, 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 presentation, there will be a question-and-answer session. All lines have been muted to prevent background noise. This call is being recorded. I would now like to turn the call over to Noah Hoppe, Senior Vice President of Investor Relations. Thank you. Please go ahead.

Noah Hoppe, Senior Vice President, Investor Relations

Thank you, Rob. Good morning, everyone, and thank you for joining us for Hyatt's fourth quarter and full year 2021 earnings conference call. Joining me on today's call are Mark Hoplamazian, Hyatt's President and Chief Executive Officer; and Joan Bottarini, Hyatt's Chief Financial Officer. Before we get started, I'd like to remind everyone that our comments today will include forward-looking statements under federal securities 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, President and CEO

Thanks, Noah. Good morning, everybody, and thank you for joining us today for our 2021 fourth quarter and full year earnings conference call. I'd like to begin today by expressing my deepest gratitude to every member of the Hyatt family. The last two years have been the most challenging this industry has ever faced, beginning with an unprecedented level of disruption in 2020, followed by a rapid but very uneven recovery in 2021. We've successfully adapted to this dynamic environment by getting closer to our best customers and World of Hyatt members, even as we quickly adapted and discovered new sources of demand, all while maintaining an unrelenting focus on our purpose: to care for people so they can be their best. I'm very proud of the way the 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 had 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 15 times 2019 EBITDA levels. Should we successfully close these two transactions, they will mark early and solid progress toward the $2 billion asset sell-down commitment we announced in August. We look forward to updating you on the progression of these sales and future plans relative to our sell-down program. I'll conclude my prepared remarks this morning by reiterating my gratitude to the 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 Bottarini, CFO

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-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. We're reporting ALG as one segment, inclusive of its 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 aligns 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 are 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, Senior Vice President, Investor Relations

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, President and CEO

Thank you, Noah. First and foremost, I want to express that we are delighted with our performance this quarter, as well as what we are experiencing in this growing phase, which we can refer to as post-Omicron booking levels. This gives us significant optimism as we progress through this year. Our core legacy Hyatt business is performing exceptionally well, and the margins Joan mentioned along with our overall financial results are very strong. We've managed to sustain growth and perform at an advantage compared to our main competitors. Joan outlined the unique aspects of ALG well, including serving leisure demand, which has been a critical factor, and their high-end customer base that aligns perfectly with ours. Their strong performance and impressive returns for owners stem from the integrated platform we acquired, anchored by the AMR Collection of hotels. Now, regarding our financial performance measure for the fourth quarter of 2021, it's $139 million. I want to emphasize this number, as it reflects an adjusted EBITDA of $112 million, plus net deferrals of $19 million, and a change in financed contracts of $8 million. The latter two items relate to UVC, a component of the ALG business. I’ll hand it over to Joan shortly for further explanation of these differences. To reiterate, our financial performance measure for the company is $139 million for the fourth quarter. For the ALG segment this quarter, we assessed financial performance at $31 million, consisting of $4 million in adjusted EBITDA, $19 million in net deferrals, and $8 million in net financed contracts. The calculation isn't complicated, as it involves three main figures related to the accounting of membership fees collected and their GAAP booking, which Joan will clarify soon. Additionally, I want to highlight our cash position, as AMR and UVC together produced $40 million in operating cash flow during the fourth quarter of our ownership. This is a notable amount, significantly exceeding the adjusted EBITDA of $4 million. It illustrates the economic strength and performance of these businesses. We chose to exclude the Vacations business from the operating cash flow statistic because it has a substantial level of net working capital that varies seasonally, with sometimes significant fluctuations. This can be misleading, as cash inflows and outflows can vary throughout the year, resulting in a modest overall change. I want to clarify this since there were several inquiries regarding the financial performance metrics. To recap, the ALG segment for the quarter was $31 million, and the company overall was $139 million. I’ll now pass it to Joan to explain why we are dedicating this much time to the details, especially since UVC is just one part of the business, though it integrates fully with the rest of the company and drives these accounting variances.

Joan Bottarini, CFO

Thanks, Mark. I wanted to take a moment to discuss the accounting and disclosures regarding the membership club, which operates similarly to other subscription models where a fee is paid for access to certain benefits. In this case, those benefits are provided by the Americas AMR resort. While the accounting for the club resembles that of the timeshare business, I want to clarify that it is not a timeshare operation. Hyatt requires virtually no capital, and no points are purchased. Instead, it is a fee-based membership club where members pay fees over time to access benefits. Although comparing it to timeshare is useful for understanding, it is fundamentally a different model. We've explained the accounting further, particularly how cash ties into the combination of the three financial items we report and the distinctions in GAAP accounting, where expenses are recognized upfront and revenue is recognized over time. More details can be found on Pages 22 to 25 of the supplemental presentation. With that, I’ll turn it over to Rob for Q&A.

Operator, Operator

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

Stephen Grambling, Analyst

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, President and CEO

Thank you for the question, Stephen. If you have the presentation we posted, there's a comparison of the first half and second half on Page 15 that might be a good starting point for understanding the amounts. However, your question is about where the contributions came from across our various business lines. As mentioned earlier, we have two business lines within ALG: AMR, which accounts for roughly 70% of the total, and the Vacations business, which makes up about 30%. The total economic EBITDA for the second half was $125 million. I noted in my remarks that AMR, hotel performance, and all parts of the business exceeded our expectations due to the surge in leisure demand and the opening of Europe, which led to an extended season and the advancements made in technology and operating practices in Vacations. We're performing significantly ahead of our underwriting and are optimistic about continuing momentum into the next year. It's worth mentioning that part of the strong results in the second half of last year was because Americans couldn’t travel to Europe, which led many to choose the Caribbean and Mexico instead. This resulted in more people discovering our resorts, contributing to a significant increase in UVC membership. Additionally, the cruise lines were not operating, which means we expect more European travel this summer compared to last year and that sailings will resume at some point. I strongly believe that our exposure to a larger guest base, particularly Hyatt's former guests, will continue to boost demand, as we are seeing exceptional booking levels. In terms of converting EBITDA into cash, that conversion rate is very high. The working capital changes for the Vacations business are seasonal, but there are no significant changes in net working capital for AMR and UVC. The translation of economic EBITDA into cash remains strong. Currently, ALG has generated $40 million in cash, while our assessment of the economic result stands at $31 million. The $9 million difference is related to timing issues and some working capital, but overall, those figures should align closely over time. We are confident that these numbers accurately reflect our economic performance and serve as a good indicator of cash flow.

Stephen Grambling, Analyst

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, President and CEO

Yes, first of all, I want to clarify that we do not view our members as a source of revenue. Our priority is to care for them sincerely. We believe it's important not to objectify our relationships with our most valued members and guests. UVC and World of Hyatt members are invaluable to us due to their loyalty and financial commitment. Our goal is to provide high-quality travel opportunities within our system, and we expect to see significant growth in market share and overall spending from both groups. We are currently exploring ways to enhance the World of Hyatt program to add value for UVC members in the ALG network and to improve existing offers by integrating ALG's AMR Collection due to the high quality of those properties. We anticipate growth in membership; UVC has seen an 18% compounded annual growth rate over the past five years, and World of Hyatt membership has tripled. A version of UVC will be developed for Europe, which currently does not have this program, but World of Hyatt is already established there. We see great potential for network effects to create a more global offering as we move ahead.

Patrick Scholes, Analyst

Good morning, everyone. I have a question about what appears to be a significant increase in SG&A. I believe the figures are correct—specifically, the core legacy Hyatt business seems to be rising from about 250 to 300, which is roughly a 20% increase. If I have that right, could you explain this substantial rise? Thank you.

Joan Bottarini, CFO

Sure, Patrick. I can clarify our SG&A guidance which I mentioned earlier is expected to be between $460 million and $465 million for 2022. As you noted, legacy Hyatt is estimated at $300 million to $305 million and includes one-time integration costs for ALG. If those costs are excluded, the figure for legacy Hyatt is around $275 million, which does include some investments for 2022 but remains 20% below our pre-COVID expense base, excluding inflation. We have already stated that we are focused on retaining savings compared to our pre-COVID expense base in the range of about 15%. We are on track to meet our expectations for 2022. I also want to highlight that part of the total is the expectations for ALG, which accounts for $160 million of the $460 million to $465 million total SG&A guidance. We've made the strategic decision to invest in this part of the business, which is performing very well, growing rapidly, and has significant momentum as outlined in our earlier remarks. We will continue to invest in this business as it keeps expanding.

Chad Beynon, Analyst

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.