Hyatt Hotels Corp (H) 2021 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Hyatt Q2 2021 Earnings Call.

(Operator Instructions) Please be advised that today's conference will be recorded.

(Operator Instructions) I would now like to hand the conference over to Noah Hoppe.

Thank you.

Please go ahead.

Thank you, Blue.

Good morning, everyone.

Thank you for joining us for Hyatt's Second Quarter 2021 Earnings Conference Call.

Joining me on today's call are Mark Hoplamazian, Hyatt's President and Chief Executive Officer; and Joan Bottarini, Hyatt's Chief Financial Officer.

Before we get started, I would like to remind everyone that our comments today will include forward-looking statements under federal securities laws.

These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K, quarterly reports on Form 10-Q and other SEC filings.

These risks could cause our actual results to differ materially from those expressed in or implied by our comments.

Forward-looking statements in the earnings release that we issued 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.

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.

Thanks, Noah.

Good morning, and thank you to everyone for joining us on Hyatt's Second Quarter 2021 Earnings Call.

During our last call, we shared our optimism about the second quarter.

And while we anticipated to see marked improvement, our adjusted EBITDA for the quarter significantly exceeded our expectations.

The swift pace of our recovery so far demonstrates the operating leverage within our business as we translate an improving RevPAR environment into revenue growth and margin expansion.

Operating cash flow was positive for the quarter and our owned and leased segment adjusted EBITDA improved over $40 million from the first quarter.

We do find ourselves experiencing very different demand profiles throughout the world.

The overall recovery thus far, has been much quicker than we predicted and leisure demand is at a record high in certain markets, yet demand remains at historic lows in many parts of the world.

COVID remains present in both narratives, but it's clear in our second quarter results that when restrictions are eased and people are able to travel safely, the desire to get back to travel and back to hotels is stronger than it's ever been.

I want to express my deepest gratitude for the tireless efforts of every member of the Hyatt family working to welcome millions of travelers back into our hotels.

The labor environment has been challenging, putting significant pressure on our teams to deliver the high level of service our guests expect from our brands.

We're remaining agile in how we are addressing these labor challenges by examining all aspects at how we retain, attract and train talent.

We're forming new recruiting relationships and sourcing more candidates from outside of our industry.

We're also increasing our pool of nontraditional candidates through initiatives focused on diversity, equity and inclusion, such as our RiseHY program, which focuses on the employment of opportunity youth.

As we remain focused on hiring, I'm proud to say that we recently published our EEI commitment as part of the launch of World of Care, our ESG platform.

I look forward to continuing to update you on our progress to drive meaningful change within the hospitality industry and across the communities in which we operate.

So let's start with the latest trends we're seeing.

As I shared at the start, we anticipated the pace of recovery would accelerate in the second quarter in conjunction with wider vaccine availability, but the quarter finished well ahead of our expectations.

We've seen growing leisure transient demand, and I'll take a moment to review just how quickly it has accelerated this year, but I'll also share how the recovery has varied globally compared to our 2019 results.

Starting with sequential growth.

System-wide RevPAR grew 58% in the second quarter compared to the first quarter.

Demand has steadily improved since January with double-digit RevPAR growth in each successive month compared to the prior month.

The most pronounced period of RevPAR acceleration commenced with Memorial Day weekend in the United States and continued through July, driven by a wave of leisure transient demand.

System-wide RevPAR was trending approximately 50% of 2019 levels, just prior to Memorial Day, and it's grown to nearly 75% of 2019 levels for the month of July, with RevPAR ending at approximately $100.

The RevPAR acceleration has come through higher demand, but also bolstered by a significant increase in the rates, which are nearing fully recovered levels.

Overall, swiftness of improvement in recovery is impressive considering major travel restrictions remain throughout the world, business transient and group have only partially recovered and international travel remains limited.

RevPAR growth in the United States was the primary driver of the jump in system-wide RevPAR improving 75% in the second quarter over the first quarter and more than double a 30% aggregate growth rate for the remainder of the world.

The United States benefited from widespread vaccine availability and reduced travel restrictions, which unleashed significant pent-up leisure demand.

From a global geographic market perspective, the rate of recovery continues to be highly uneven and heavily dependent on successful vaccination rollouts leading to lower transmission rates of COVID-19, and ultimately, the easing of travel restrictions.

To give you a sense of insperity, as of mid-July, geographic areas such as Europe, Southeast Asia and the Middle East are trending at less than 50% of fully recovered RevPAR levels while the United States, Mainland China and the Caribbean are over 80% recovered.

The surge in our resorts is unlike anything we've previously experienced.

In January, comparable U.S. resort RevPAR was down 75% versus 2019.

In June, just 5 months later, RevPAR was 11% above 2019 with strong average rate growth in June of over 25% compared to 2019 levels.

The leisure transient surge has extended well beyond our domestic resorts.

Hotels in Mexico and certain parts of the Caribbean are also at higher RevPAR levels in June, relative to the same period in 2019.

Additionally, we've experienced a notable improvement in our urban and suburban markets in the United States.

This trend has only accelerated further in July with leisure transient nearly 20% ahead of the 2019 levels in the United States and even stronger in Mainland China.

The outside contribution from these 2 markets are driving system-wide leisure transient revenue that is now slightly above 2019 levels across all comparable hotels.

Moving on to business transient and group.

These segments are lively in leisure, but the momentum is growing, and we are encouraged by the steady improvement.

Our system line business transient RevPAR in June has nearly doubled from the first quarter, driven by strength in the United States and Mainland China.

Notably, weekday RevPAR performance is now trending at 60% at 2019 levels at the end of June compared to just 40% 2 months prior.

Business transient remains approximately 40% recovered globally and demand varies significantly by market.

In the United States, dense urban markets such as New York, Washington D.C., Chicago and San Francisco are still only 20% to 30% recovered, while the majority of other urban markets are trending at a 50% recovery level or higher.

Regional businesses and some of our smaller corporate accounts are recovering the quickest, but we're also seeing acceleration in our comp accounts and continue to expect a more robust recovery in the fall.

As for group, the trends are very encouraging.

More groups, large and small, have been returning to our hotels and ballrooms.

Importantly, we're seeing room blocks actualize above expectations and the general size and mix of groups returning to more normalized levels.

We continue to expect demand to strengthen into the fall as evidenced by recent booking trends.

Group revenue booked in June for events that will occur in 2021, has reached approximately 90% of 2019 levels in our Americas full service managed properties with the rate of cancellation diminishing to only a fraction of the levels we experienced just a couple of months ago.

As we look to 2022, while group pay is down in the mid-teens compared to 2019, our leads are tracking 30% higher, which suggests that our pace deficit should improve.

Additionally, we're pleased to see group business booked in the second quarter for 2022 at an average rate that is 5% higher than the same period in 2019.

In summary, as we look across the world, growth remains uneven.

The geographic areas that have eased restrictions and are furthest along vaccination rates are seeing a surge of leisure demand.

While business transient and group are trailing in the recovery, the momentum we have seen to date, coupled with forward-looking indicators and conversations with our largest customers provide us confidence that the recovery of these segments will accelerate in the fall.

As we welcome millions of travelers back to our hotels, I'm excited that our guests have an opportunity to visit our expanding portfolio of new properties.

We've opened 100 hotels over the trailing 12 months, a record level of organic expansion leading to net room growth of 7.1% in the second quarter.

Even with our rapid rate of hotel openings, we've maintained our pipeline of signed deals in a challenging environment, closing the second quarter with a development pipeline of 100,000 -- 101,000 rooms, representing over 40% of our existing lease base.

As we've highlighted in previous quarters, conversions have been a key ingredient to our growth.

Our independent collection brands, including the Unbound Collection by Hyatt, JdV by Hyatt and Destination by Hyatt accounted for all 8 conversions in the quarter and in high barrier to entry markets such as Los Angeles, Toronto, Beijing, Sweden and Ibiza, Spain.

Demand for all of our brands remains strong amongst our development community, but I'm especially pleased with the integration and growth of the brands that we acquired through the acquisition of Two Roads Hospitality, Alila, Thompson, JdV by Hyatt and Destination by Hyatt.

By way of reminder, we acquired Two Roads Hospitality in late 2018 and spent much of 2019 integrating the brands and back-end technology into the Hyatt ecosystem.

We clearly define the purpose and profile of each brand alongside our existing portfolio.

We continue to be focused on scaling these brands and our hard work is resonating with developers around the world.

As a result of the successful integration, 2021 is shaping up to be a banner year of openings for all 4 brands.

Already through the first half of the year, the number of hotels in these 4 brands have expanded by 20%, and we expect to end the year with growth of 30% or more.

It's exciting to see how these brands have been so quickly adopted by our loyal guests with the World of Hyatt program driving over 40% of room nights.

This loyal member base has been a key catalyst of market share gains.

RevPAR index for comparable former Two Roads hotels is up 13% versus 2019 through the first half of this year.

The successful integration of these former Two Roads brands has contributed to the broader evolution of the Hyatt portfolio as an industry leader in the luxury lifestyle space.

In the span of just 3 years, we tripled the number of lifestyles in soft-rated properties from approximately 50 to 150, accounting for nearly 40% of total hotel openings over that time frame.

Further, we significantly expanded our resort presence.

Since 2017, we've grown our resort room count by 45% with well over 80% of that growth in the luxury segment.

Ultimately, as we look at the Hyatt portfolio today and our signed pipeline, we're excited with the positioning of our portfolio to take full advantage of the demand coming back to our hotels.

This transition to a heavier leisure-driven portfolio has been very intentional and complemented with a variety of enhancements such as the launch of Hyatt Prive, which is our luxury travel adviser program, the expansion of benefits with the world -- within the World of Hyatt programs such as the addition of small luxury hotels properties, the ability to use points for experiences such as Lindblad Expeditions, and our strategic relationship with American Airlines.

Most recently, during the quarter, we announced the launch of our relationship with Bilt Rewards, a new rewards program with access to millions of urban ventures, who are now able to earn the global high points just by paying rent.

Our portfolio of brands complemented with a best-in-class loyalty program and digital platform is clearly resonating.

Our base of loyalty members is the largest it's ever been and has grown 14% since the same point last year.

Our co-brand credit card spend is trending well above 2019 levels, and our enhancements to our digital platform are driving hyatt.com booked revenue more than 20% higher than 2019 levels, which is outpacing OTA channels.

Our portfolio and programs have us oftenly positioned to be the preferred brand for high-end leisure travelers now and well into the future.

Finally, I want to provide a brief update on transactions before turning it over to Joan.

During the quarter, we announced the disposition of Hyatt Regency loss times for approximately $275 million, a price that was above our pre-COVID-19 expectations.

We also acquired Ventana Big Sur, an Alila resort, for $148 million, securing our brand presence in a highly sought-after resort destination.

With the completion of these asset transactions, we've realized net proceeds of approximately $1.1 billion since the time of our announcement in March of 2019.

In addition to these transactions, I'm pleased to note that we are in advanced stages for the disposition of 2 other assets in the aggregate amount of $500 million.

Should we successfully close these 2 transactions, we will exceed our $1.5 billion asset sell-down commitment and do so well before our target date and at an aggregate multiple in the high teens.

In total, from the outset of our asset sell-down strategy announcement in November of 2017 and assuming the closing of the sale of the 2 properties in process, we will have sold over $3 billion of assets at an average EBITDA multiple of just under 17.5x, demonstrating the valuations realized in our disposition efforts are materially in excess of the implied valuation the market has placed on our owned and leased business.

We look forward to updating you on the progression of these sales and future plans relative to our sell-down program during our next earnings call.

I'll conclude my prepared remarks this morning by saying that our outlook remains optimistic.

Around the world, things remain uncertain, and we remain vigilant as we maintain the health and safety of our colleagues and our guests.

It is clear, and it's been validated repeatedly across markets and cultures, that when people are able to travel and reconnect, the commitment to do so drives customer behavior.

While we expect starts and stops, we remain confident we are on the path to full recovery.

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

Joan, over to you.

Thanks, Mark, and good morning, everyone.

Late yesterday, we reported a second quarter net loss attributable to Hyatt up $9 million and a diluted loss per share of $0.08.

Adjusted EBITDA was $55 million for the quarter, a sharp improvement from the adjusted EBITDA loss of $20 million in the first quarter of this year.

As Mark mentioned, the operating leverage in our business has enabled us to translate improving demand into a strong increase in earnings.

System-wide RevPAR was $72 in the second quarter, representing a 50% decline compared to the same period in 2019 on a reported basis, and a 58% increase compared to the first quarter of 2021.

Both occupancy and rate contributed meaningfully to the sequential RevPAR growth with roughly 60% of the improvement coming through occupancy and 40% through rate.

Leisure transient was a key driver of our improved results for the quarter, leading to a material increase in our base incentive and franchise fees, which totaled $77 million in the second quarter, a notable acceleration of $49 million in the first quarter.

In June, system-wide comparable occupancy eclipsed 50%, and as of June 30, only 18 hotels or less than 2% of hotel inventory remained closed.

Turning to our segment results.

Our management and franchising business delivered a combined adjusted EBITDA of $63 million, improving over 90% to $33 million in the first quarter.

The Americas segment accounted for the vast majority of the growth, led by our resort and select service portfolio, but also increasingly for our business and convention hotels, as more cities eased restrictions as the quarter progressed.

The Asia Pacific segment experienced improved performance, doubling its adjusted EBITDA in the first quarter as hotels in Mainland China rebounded strongly after the easing of government restrictions.

It's important to highlight that Mainland China, through a combination of RevPAR improvement, strong operating margins and net rooms growth, generated more base incentive and franchise fees than any other previous quarter on record.

As for our Europe, Africa, Middle East and Southwest Asia segment, adjusted EBITDA was modestly lower than the first quarter as travel restrictions were prevalent throughout the region.

However, the pace at which demand is currently improving, especially in Europe as we progress through this summer, serves as another proof point that when restrictions are eased, people are ready and excited to travel.

Our owned and leased hotel segment, which delivered $12 million of adjusted EBITDA for the quarter, improved by more than $40 million from the first quarter of 2021.

The swift path back to profitability, highlights the strong operating leverage within our owned and leased portfolio.

Owned and leased RevPAR was $87 for the second quarter, experiencing strong acceleration throughout the quarter, with RevPAR improving from $73 in April to $107 in June, nearly doubling the rate of improvement of our system-wide portfolio.

Our owned and leased resorts were a key driver, surpassing adjusted EBITDA generated in the same period in 2019.

Further, the acceleration in group business throughout the quarter had a material positive impact.

And this was most pronounced in June, our strongest month in the quarter, as group room nights accounted for 25% of the total room night mix, up from just 18% in May.

As we turn toward July, owned and leased RevPAR continued to strengthen further.

Preliminary RevPAR for the owned and leased portfolio in July is approximately $135, up nearly 30% from June and nearly 85% recovered versus the same month in 2019.

Importantly, the average rate in July is above the same period in 2019.

Our comparable owned and leased operating margins improved to 13.9% in June -- second quarter of June finishing above 19%, a sharp improvement from the negative margins last quarter.

We continue to closely monitor the labor environment and are working hard to get open positions filled.

To date, we've seen some pressure on wages, and our general managers have made specific adjustments based on competitive factors, but it varies by market.

As we assess the potential impact of inflation on our business, we believe the increase in daily room rates will at least offset increases to wages or other costs.

Our revenue management practices and teams reprice inventory on a continuous basis, allowing us to quickly respond to changing market conditions.

This is evidenced by our ability to quickly realize stronger rates, which were up 20% at our owned and leased resorts compared to 2019 in the second quarter.

I would also point out that valuations of hotel assets benefit from a inflationary environment, and this is a positive for us as we execute our owned and leased disposition strategy.

I'd also like to provide a brief update on our liquidity and cash.

Operating cash flow, including interest payments, was positive for the quarter and exceeded our expectations.

We anticipate our operating cash flow will continue to improve from the second quarter levels as RevPAR strengthen.

We have and will continue to invest in the growth of our brand, including capital expenditures.

Our cash investments in this area have remained in the same approximate range as the prior 2 quarters about $10 million to $15 million per month.

We expect monthly investment spend to trend higher, consistent with our expected strong year of openings and signing activity.

As of June 30, our total liquidity inclusive of cash, cash equivalents and short-term investments and combined with borrowing capacity was approximately $3.2 billion, with the only near-term debt maturity being $250 million senior notes maturing this month.

We received a $254 million U.S. tax refund in July related to 2020 net operating losses carried back to prior years under the CARES Act.

We intend to use this tax refund to pay off our senior notes upon maturity later this month.

I'd like to make a few additional comments regarding our 2021 outlook.

Consistent with our communication in the first quarter, we continue to expect adjusted SG&A to be in the approximate range of $240 million, excluding any bad debt expense.

Further, we continue to expect capital expenditures to be in the range of $110 million.

Given our confidence in the recovery, we are evaluating pulling forward selected renovation projects to take advantage of seasonality and lower displacement than we expect to have in the future.

Should we take this action, this may increase our capital expenditure estimate modestly and we'll update you further next quarter.

Turning to net rooms growth.

Earlier this quarter, in connection with the pending our agreement with Service Properties Trust, which extended our management of 17 Hyatt-placed hotels that we previously forecasted to exit the system, we increased our net rooms growth projection to approximately 6%, up from greater than 5% as previously reported in the first quarter of 2021.

We're updating this expectation of net rooms growth to be greater than 6% for the year.

While there is some degree of uncertainty related to supply chain issues which could push certain openings into early 2022, we remain very confident in our ability to deliver another exceptionally strong year of net rooms growth.

Finally, I'd like to briefly comment on earnings sensitivity.

Our previously communicated earnings sensitivity levels illustrated that a 1% change in RevPAR level using 2019 RevPAR as a baseline, resulted in an impact of approximately $10 million to $15 million in adjusted EBITDA.

We previously communicated that we expected that our earnings sensitivity would be at the high end of this range in the near term due to the larger decline in owned and leased RevPAR relative to our system-wide RevPAR as a result of COVID-19.

As the relationship between owned and leased system-wide RevPAR has normalized, the earnings sensitivity is now expected to improve towards the midpoint of the $10 million to $15 million range of adjusted EBITDA, reflecting our ability to mitigate the adjusted EBITDA downside impact relative to our 2019 results.

I will conclude my prepared remarks by saying that we are very encouraged by the rate at which our business is recovering.

Adjusted EBITDA and operating cash flow were positive for the quarter, and we anticipate the momentum to continue into future quarters.

Our management and franchise business reflects the quickly strengthening RevPAR environment, and coupled with industry-leading net earnings growth, is accelerating meaningfully.

Our owned and leased hotels continue to exceed expectations as the segment generated positive adjusted EBITDA for the quarter.

We remain mindful that this recovery will be uneven but have unwavering confidence we are on a path to full recovery.

Thank you.

And with that, I'll turn it back to Blue for our Q&A.

(Operator Instructions) Your first question comes from the line of Stephen Grambling from Goldman Sachs.

I think you touched on this in the remarks a little bit, Mark.

But now that you've bumped room growth to 6% plus from, I think, it was 6% 2 months ago, which was up 5% plus a month before that.

Can you just elaborate on what's driving the incremental confidence as we think about splitting it between accelerated construction schedules versus outright interest in development and/or changes in the financing environment?

And then as we think longer term, how might the pipeline at 40% of your existing room base translate to room growth longer term?

Thanks, Stephen.

A couple of things to note.

First, conversions have been running at or above what we would have expected in the year, and that continues to be a source of strength and confidence for us.

Secondly, the terminations are at a lower level than we built into our own outlook.

And as we get later in the year, our confidence interval around that is going to go up.

Third, we've got more time passing, and we've seen the openings continue to pace.

Opening dates have moved later in the year over the course of this year, and the primary driver of that is in supply chain disruptions.

So we're paying close attention to that because that -- we're not -- the supply chain isn't moving fluidly yet.

So we are wary of any other negative developments there, which might push some openings into the following year.

But the way we look at it is we have a gross room opening expectation for the remainder of the year that's far in excess of this 6% level or thereabouts.

And really what we're managing at this point is how much of the guesstimating is how much of those -- how many of those projects get pushed into January or February.

So I guess what I would say is because of the dynamics that I mentioned a minute ago, our confidence level is higher, and that's why we're confident to say it's going to be over 6%.

And the other thing that's true is that we have to report as of quarter end, so we will.

But our confidence that what's in the opening schedule right now will open and when it opens a week later or 2 weeks later than December 31, that's -- in size, is not going to be that meaningful because it's really the momentum that actually matters the most.

With respect to the pipeline, as we've said on prior calls, there's -- it's a tale of a few different cities, a few different narratives.

But the first is that select service is still under pressure primarily because of financing constraints in the United States.

That's been more than made up for by select service and full-service signings across the globe and full service and resorts in the Americas.

So our overall pipeline is maintained, and we do expect to see some real progression and positive developments in the select service area between now and the end of the year.

With respect to what all that translates into in terms of net rooms growth in the future, you'll remember that our earnings model, pre-COVID, suggested that we would have a net rooms growth longer term somewhere between 6.5% and 7%.

I see no reason why we shouldn't be at least in that range, if not higher, long term.

And in the next couple of years, it could be lower than that, maybe between 6% and 6.5%.

But I don't think it's going to drop below that.

We just have -- we have too many projects that are coming through and too much momentum in the conversion side for that to happen.

So that's our current outlook.

Your next question comes from the line of Gregory Miller from Truist Securities.

Mark and Joan, I'd like to start off with the Ventana acquisition.

Regarding the Ventana Big Sur, could you provide some more detail on the strategy behind the acquisition, including some context behind the headline pricing?

And perhaps more broadly, how you see luxury resorts valued today?

Sure.

I don't know that Ventana Big Sur has a read-through for anything else because it's in a market that has the benefit of being a drive-to market from to the most -- the biggest markets of qualified guests for that hotel, San Francisco and Los Angeles around.

Secondly, Big Sur is highly constrained in terms of new development.

There literally is no opportunity to build anything else in Big Sur, and frankly, up and down the Pacific Coast Highway for 20 or 30 miles in both directions.

So it's just -- it's a completely unique asset in an amazing natural environment, which certainly has benefited from people who desire to get back to the wilderness and get back to nature and will continue to be driven by that.

In terms of the economics of the place -- of the acquisition, we're having an extraordinary year this year.

It is the highest rate and highest RevPAR hotel in our entire system.

I think we're currently tracking at about $2,000 a night on a consistent basis at very high occupancy levels.

And the translation of that into -- given the flow-through levels, into earnings has yielded effectively a low double-digit kind of multiple on our acquisition for this year's earnings.

It's -- the 2019 reference point would be higher in the high teens, but remember that 2019 was the year in which we were coming out of renovation and ramping the hotel.

So we think that the economic picture is quite attractive.

And while 2021 might be a peak year because of the unique dimensions of COVID, we know that the cache and the guest response from being in that location has been fantastic.

Finally, I know that the price per key caught some attention, but we are not so focused on the price per key for a few reasons.

First, the hotel is located on a very large parcel of land and it brings with it other programming opportunities.

So what the purchase price includes is not just a key count on a tight pad, it's actually an expansive resort location.

And secondly, we identified a number of ways in which we can enhance the programming and also expand the property.

Because right now, we're operating with about 50 keys, and it's entitled for 59 keys.

And the way in which we add those remaining keys will matter a lot because we think that the demand level for high-end suites in that location is very high.

So we see, frankly, a great growth opportunity in terms of revenue and earnings.

And as I said before, it is the highest barrier of entry market I know in the entire world.

That's all very, very helpful.

So I appreciate all that, Mark.

As a brief follow-up, since you were speaking about the outdoors just a moment ago, I'd like to shift gears and ask about the Miraval Berkshires.

If you could speak to your initial expectations for that property and maybe some detail if you can about how the other Miraval properties are performing today.

Yes.

Thank you.

So not surprisingly, Miraval is booming in many ways, and in other ways, it's very constrained.

So just as a reference point to start with the numbers.

The second quarter -- in the second quarter, the 3 properties, that is Tucson, Austin and the Berkshires, generated about $7 million EBITDA.

And that is inclusive of significant capacity constraints where we limited occupancy to below 50% in all 3 resorts for April and May and in the Berkshires continue to operate at something like a 30% or 40% occupancy level.

And it's all driven by availability of therapists and trade personnel who can actually run the programs for us.

Having said that, RevPAR has -- in this business, the RevPAR is interesting, but not actually the biggest issue.

Biggest issue is total revenue per occupied room, because the vast majority of the revenues of these properties happens on property but outside of room rate.

So while room rates are in and around $300 a night, the total revenue per occupied room was over $1,700 and that's up more than 25% versus 2019.

So the way we look at the investment that we've got in the real estate, which aggregates to a bit over $300 million excluding the brand value that we paid for, the -- as we look at just the second quarter of this year at those highly constrained occupancy levels, we're already running something approaching $30 million on a run rate basis.

So we're really got over renovation in Tucson.

That will be complete -- or the rooms part of the margin will be completed by September.

The remaining will be largely completed by November.

So we're going to continue to build.

And as we are able to lease staff at a better level over the course of the remainder of this year, we have very high expectations for the earnings potential for the Miraval's going forward.

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

Can you just give us an update on your capital allocation thoughts, both in terms of capital returns?

Any thoughts around larger-scale M&A, if you had like single assets?

Thanks, Thomas.

In terms of capital allocation, obviously, we deployed some capital to acquire Ventana.

In my prior response, I forgot to mention the most important driver of our interest in buying Ventana, and that is that our management agreement was terminable upon sale.

And so we wanted to secure our presence there for the long term.

It's become an integral part of our Alila network on the West Coast, including Napa Valley and (inaudible), the (inaudible) Beach Hotel.

But it's also a key addition to a resort that serves a very high-end customer base, including our World of Hyatt members.

So I failed to mention that as a key driver why we acquired it to begin with.

So we, obviously, acquired that, but that's actually not that material.

We've benefited from this tax refund that we received of $254 million, and we will turn around and use those proceeds from our tax refund to repay the $250 million of maturities in August.

And we do have a very strong cash position, and it's also true that we've got -- we raised $750 million in August of last year in floating rate bonds that are due over the next couple of years.

So we're paying attention to those maturities as well.

We feel that we come through the pandemic and now into recovery mode at a very healthy clip with respect to earnings and cash flow -- positive operating cash flow in the second quarter, which we expect to grow over time.

So as we think about deployment of capital, we are starting to turn our attention to, I would say, back to the things that we were trying to do and identify before COVID hit, which is more and more opportunities to grow in Europe.

And we are paying close attention to smaller brands and groupings of hotels there.

While the deal volume there has been slow to date, we are tracking a number of different potential opportunities in the hopes that we'll see some things free up over the coming year.

And also, we talked a lot about -- I talked a lot in my prepared remarks about the extension of our resort portfolio over the last several years.

Again, that's been deliberate because we've intentionally wanted to grow in lifestyle and in the leisure segment.

So we're going to continue to focus on that.

As always, growing the company in a very deliberate strategic way is our top priority.

But it's also true that we move back to -- we are essentially back to a strong balance sheet already and moving back to internal operating cash flow.

So we will take up the question about returning capital to shareholders in 2022.

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

I just wanted to go back and ask you a question on the group statistics that you mentioned in your opening remarks.

I just want to make sure I understood right.

Did you say that you've got 90% of rooms volume that you did in '19 on the books for '22 and those rooms that are at a 5% higher rate?

Is that correct?

No.

Right now, we -- so yes, let me clarify.

The 90% figure I cited was the bookings that we saw in June, that they were in the month for the quarter -- sorry, for the year, for the remainder of 2021.

So the total amount that we booked in June, 4 dates within 2021, is it a roughly 90% level -- well, 90% of the 2019 level in June for the remainder of the year.

Just to give you a sense for sort of a current rate of booking activity.

The pace into 2022 is down relative to 2019 levels at around -- in the mid-teens level.

So it means that we're tracking along the booking pace that we saw in 2019 between the end of the first quarter to the end of the second quarter.

We're tracking that booking level increase pretty closely to 2019 levels that would change the activity level over the last quarter was in growth terms the same as it was in 2019.

That's very encouraging because we maintained that down into the mid-teens territory pace number between the end of the first quarter and the end of the second quarter.

As we look forward, we have something in excess of $760 million on the books for next year, and that compares to something in the range of $900 million at the same point in 2019 on the books for the following year.

Basically, the way we look at this is if you think about the fact that we're sort of trending and tracking to down 15% from 2019 levels, we have 2 dynamics that we think are things that we need to pay special attention to.

The first is that tentatives and leads are tracking dramatically higher than where we were in 2019.

And we think that, that should lead us to close that gap to that deficit in terms of pace, between now and maybe through the first quarter of '22.

The biggest gap that we got in terms of near-term bookings is in the first quarter of 2022.

But what we're seeing in progressing from Q3 to Q4 this year is a significant increase in the size of groups.

So the biggest area of growth is in groups that are between 100 and 250 participants.

And we're encouraged by citywides.

So we've got citywides coming back actually pretty significantly.

So something in the range of 1/4 of the business on the books related to citywides.

70% of those citywides are in the first half of next year and are firming up at this point.

The second dynamic I would note is that, not surprisingly, about 2/3 of our Q3 bookings, corporate with association at very low levels.

And in Q4, it's about 50% corporate and association is starting to come back now.

So as we look into 2022, I think, the biggest deficit we've got in the first half is corporate bookings.

Not surprising because it's on a shorter time horizon for booking and associations are strengthening over the course of the year next year.

What does that mean in the aggregate?

It feels to me like right now, if you force me to say, what does that mean from a -- as a point estimate into next year?

Kind of feels like group business could be at -- realizing or actualizing at something like 85% of 2019 levels.

Is there a downside potential?

Sure, there are restrictions that could come about, but there's a ton of very acute demand, especially among corporates to get back together.

The upside potential is that those tentatives and lease that I mentioned to you start to actualize, in which case, we could be higher than that.

So we still have a long way to go and a lot more business to book, including the year -- for the year bookings for next year.

But right now, our point estimate is, as I described it.

And then if you look at one further into the future, 2023 is down in the high teens relative to 2019 levels.

Rate is maintained or higher, and it's really volume.

So I think as things start to firm up as we head into 2022, we'll start to see a pace improvement there as well.

Okay.

I really appreciate that detail.

I just wanted to ask you, too, you mentioned that the acquisition of Big Sur was driven by the contract being terminable upon sale.

Are there other properties where you feel like you might have to put your balance sheet to work in order to lock in and your management there?

And do you see these as potentially long-term dispositions?

Or are you happy to own that asset longer term?

Two different questions.

So on the first question, our Quorum management franchise base -- contract base -- we have a de minimis number of contracts in which we have termination on sale provisions.

The place where we acquired more contracts that had some of those provisions in them was in the Two Roads portfolio, and this property was in the Two Roads portfolio.

But even there, that's weighted down to a pretty low number.

So we don't really have many.

And I can't think of any at this point that we don't feel are more stable and where we're performing really well.

So really nothing else on the horizon that I can speak to.

And secondly, I believe, for the reasons that I said that earlier, that Ventana is a unique and highly attractive property.

So I believe that there would be tremendous interest by other buyers to ultimately be interested in buying it.

We did not buy it to hold for the long term.

In fact, I would consider everything that we've got as subject to being a part of our disposition strategy at some point in time anyway.

So we did not buy it to hold it.

Your next question comes from the line of Dori Kesten from Wells Fargo.

Assuming the 2 hotels you mentioned do sell as expected and you complete the current net disposition program, will you expect to move forward with another program?

Or as you sit here today, would you prefer to take a less programmatic approach?

No, I think we have -- we deliberately set some goal posts back in 2017.

And we did it because we felt that clarity to the investment community was essential.

And it was also true and remains the case that Wall Street somehow has chosen to value our owned estate at low multiple levels.

And I think Joan laid out a very, very clear case for why that's wrong minded.

When you look at the operating leverage that we have created through, I think, remarkable management and disciplined approach to revenue management because we gained revenue share -- significant revenue share, like 500 points -- 500 basis points of revenue share in our owned and leased portfolio over the last quarter.

These are remarkable results.

And we are committed to demonstrate the value in our own portfolio by way of setting programs in place that we have now, I think, will exceed both in terms of our time of execution and our valuations of execution, and we're going to continue to do that.

Your next question comes from the line of David Katz from Jefferies.

Moving on to the next questioner.

Your next question comes from the line of Chad Beynon from Macquarie.

Mark, you briefly just touched on this.

And Joan, in your sensitivity work, I think, it kind of is flowing through this.

But I wanted to revisit the owned business, particularly the long-term margins.

You mentioned that you've been able to push through some of the labor inflation to the consumer with higher prices.

And I believe previously, you've talked about getting back to those prior revenues, margins could be 100 to 300 basis points higher.

I was wondering how you're thinking about long-term margins for this business and if that still stands true.

Yes.

Thank you for the question.

Yes, we still expect long-term margins to be in the range of 100 to 300 basis points, greater than on a stabilized basis, kind of pre-COVID levels.

So let me respond and expand on your question with respect to the owned and leased portfolio because it actually follows up with what Mark was just alluding to, that the acceleration of the recovery has led to really strong results in the quarter in our owned and leased portfolio, and that's continued into July.

And we've talked in the past about our continued focus on profitability initiatives and they need to -- they've been leading and continue to lead to strong flow-through at our hotels, including the work that we're doing with our SMB initiatives and making sure that we're tailoring offerings to be both the most profitable offerings and also meeting current consumer demand.

We also have a number of digital initiatives that are also leading to productivity improvement.

But importantly, what we've seen our managers demonstrating is really inventive, approaches to revenue management and marketing strategies where they're driving market share and repositioning what would be the traditional demand profile and our hotels to meet current demand that they're seeing in their markets.

RevPAR, at our owned and leased RevPAR index that are owned and leased hotels, it was up 9% in the quarter.

And I'll give you an example of a property that's really demonstrated what I'm talking about, it's the Hyatt Regency Orlando, which is a 1,600 room convention hotel and in a stabilized year.

So in 2019, this hotel will typically fill its room with 70% to 80% group room nights.

And in the second quarter, RevPAR for the hotel was down about 50%.

In June, they were down about 30%.

And in July, they were down about 7%.

And based on these market strategies that they've employed and as the demand and as the acceleration has -- happens in their market, they've captured leisure demand.

So those numbers that I just provided for June and July, they're filling their hotels with about 50% of their room nights sold being from leisure demand during the month of June, July.

So just in summary, we're successfully evolving the ways in which we manage each hotel.

And again, going to where the demand is and repositioning the hotels really smartly.

So it's an execution, successful execution by our managers both on the top line and through those profitability initiatives as well.

We'll take our last question, please.

Your last question comes from the line of Michael Bellisario from Baird.

Just want to go back to the development pipeline maybe.

How did the quality compare to a few years ago?

Just trying to think about the mix of higher-earning managed hotels, is the contract lengths longer?

And kind of how you think about the stabilized earnings of each room in the pipeline versus simply just the room count, which is what we see reported every quarter.

Any thoughts there would be helpful.

Thank you, Michael.

I would say that the quality, I guess, of the pipeline itself is higher than where it was a couple of years ago the -- and what I mean by that is we have had, over this period of time last year, effectively replacing the pace that we had enjoyed on select service signings with more full service and lifestyle hotels globally.

The contract terms internationally are quite stable at this point and require less capital through way -- by way of either key money or other financial support.

Some of the capital intensity is lower for these signings.

We've more than replaced the lull in select service signings over the last year with these higher-rated and full-service properties.

So if you think about the embedded fee generative power per key, effectively has gone up over this past year.

I'm happy to say that we continue to find opportunities with existing owners, but it's also true that we've expanded our relationships with a number of new ownership groups.

You might remember that we announced last quarter that we have expanded our franchise team, franchising and the relations team, to really lean on accelerating the franchise growth.

That's come to light in the most significant way in Europe so far.

We do expect that to translate into a higher pace of franchise growth here in the U.S. and in Europe.

So in summary, we have a substitution in our pipeline.

It's with very robustly underwritten deals that we have valued one by each.

These are deals that are fully signed and, in our opinion, financed or able to be financed.

And they were very stable contract terms.

We're not seeing any degradation in our contract terms over time.

And finally, I do expect that our franchise fee base will grow at a faster pace going forward and represent a bigger proportion of our total fee base as time unfolds here in the next 3 to 5 years.

So for all those reasons, I think, we're actually -- sort of have a higher, from a fee generative perspective, a higher quality and more stable, more predictable level of fees into the future.

Thank you, everyone, for taking the time to join us today.

Take care, and we look forward to speaking with you soon.

Ladies and gentlemen, this concludes today's conference call.

Thank you for participating.

You may now disconnect.