Hyatt Hotels Corp

NYSE:H

Earnings Call Transcript 2021-Q3

[Operator]

Good day, ladies and gentlemen, and welcome to the Hyatt Third Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Noah Hoppe, Senior Vice President, Investor Relations. Thank you, please go ahead.

[Noah Hoppe, Senior Vice President, Investor Relations]

Thank you, Blue. Good morning, everyone, and thank you for joining us for Hyatt's Third Quarter 2021 Earnings Conference Call. Joining me on today's call are Mark Hoplamazian, Hyatt's President and Chief Executive Officer; and Joan Bottarini, Hyatt's Chief Financial Officer. Before we get started, I would like to remind everyone that our comments today will include forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties as described in our Annual Report on Form 10-K, quarterly reports on Form 10-Q and other SEC filings. These risks could cause our actual results to differ materially from those expressed in or implied by our comments.

Forward-looking statements in the earnings release that we issued today, along with the comments on this call, are made only as of today and will not be updated as actual events unfold. In addition, you can find a reconciliation of non-GAAP financial measures referred to in today's remarks on our website at hyatt.com under the Financial Reporting section of our Investor Relations link and in yesterday's earnings release. An archive of this call will be available on our website for 90 days.

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

[Mark Hoplamazian, President and Chief Executive Officer]

Thank you, Noah. Good morning everyone and thank you for joining us for our third quarter 2021 earnings call. As most of you have seen, we officially welcomed all of the Apple Leisure Group colleagues into the Hyatt family earlier this week. We closed on the acquisition of Apple Leisure Group on November 1, and we're collectively even more thrilled about the prospects for the combined company today than we were when we first announced our plans back in August.

As I reflect over the past several months, during which I've gotten to know the ALG much better, met with hotel owners and toured a number of stunning AMR Collection Resorts. I'm energized and really excited about the bright future for ALG as a part of Hyatt. The cultural fit between our two companies with a joint focus of care could not be better. And the timing is proving to be very auspicious as leisure demand continues to be durable, and a growing proportion of our segment mix.

We look forward to keeping you well informed on the progress of our integration efforts and performance of the ALG platform moving forward. Turning to our results, we're another quarter into the recovery and have again produced results that demonstrate the strength of our business and reinforce that we're emerging from this challenging period as a more agile and stronger company. In the span of just two quarters, our quarterly adjusted EBITDA has improved $130 million recovering to nearly 70% of 2019 levels in the third quarter.

We've worked tirelessly to evolve and reimagine aspects of our operating model, and the financial results and our momentum demonstrate our progress. Importantly, while we had been focused on preserving cash and managing expenses tightly, we've invested in areas that are driving growth, and we've not wavered from our long-term strategy. With vaccination rates continuing to rise, travel restrictions around the world easing and borders reopening, I am as confident as I've ever been that we are on a path to full recovery. I'm optimistic that the most recent trends in our business and also the important developments over the past quarter including of course the acquisition of ALG demonstrates significant progress towards realizing the benefits of our long-term strategy.

Before diving deeper into the progress on our strategy, let's take a look at the latest business trends. RevPAR in the third quarter continued to recover at a robust pace, accelerating nearly 30% compared to the second quarter, and doubling RevPAR levels in the first quarter. As discussed on our last earnings call, we experienced a wave of leisure demand during the summer with system-wide RevPAR eclipsing $100 in July, which was approximately 75% recovered as compared to 2019.

As we moved into August, RevPAR decelerated by approximately 10% as compared to July, driven by seasonality, coupled with reimposed travel restrictions in certain markets related to the Delta variant. However, this deceleration was short lived, demand rebounded throughout September and has strengthened further as we move into the fourth quarter. Absolute RevPAR in October is nearly as strong as July at $98, what is encouraging is that the recovery has broadened, whereas our strength in July was primarily driven by resort locations, the improvement more recently has been from urban locations, which experienced RevPAR growth of 10% in October as compared to July.

From a segmentation perspective, Leisure transient remains the top performing segment. System-wide leisure transient revenue was at 96% of fully recovered levels in the third quarter, an incredible performance when considering the significant restrictions that were still prevalent in many parts of the world. Strong leisure transient demand is proving to be far more than a summer surge, as leisure transient revenue booked in October for all periods was over 20% ahead of 2019 levels.

Further, total transit revenue at our Americas resorts is pacing 25% ahead of 2019 levels for the last weeks of December. At this pace, we anticipate the festive season could be one of the strongest we've ever experienced. We've also been pleased with the progression of group and business transient demand. While demand did not accelerate immediately following Labor Day due to the Delta variant, the upward momentum has been steady throughout September and October.

The rate of improvement in group during October has been particularly meaningful after seeing elevated levels of cancellations in August and early September due to the Delta variant. Since that time, cancellations have receded while short-term group demand has strengthened. Overall, system-wide group revenue jumps 16% in October, as compared to September and is trending at 50% of fully recovered levels.

Group bookings for 2022 are also showing significant improvement. In October, our leads for 2022 grew by 38% as compared to September, and we're now 10% ahead of 2019 levels for group business that is likely to book, while group pace for 2022 is approximately 80% recovered a bit weaker than what we reported last quarter, the strong current level of group bookings coupled with growing lead volume provides confidence that momentum will build as we head into 2022.

As for business transient, the recovery has been softer than group but it's still showing steady momentum with demand recovering to 46% of 2019 levels in October. We continue to see stronger growth in our regional accounts as compared to our larger national accounts. However, that gap is narrowing.

Our largest corporate accounts have grown by 50% since June, and we continue to be encouraged by dialog with our corporate customers who are returning to offices in bigger numbers, with many planning on a more robust return to travel in 2022. The recovery momentum has also expanded geographically. One of the areas with the most pronounced improvements is Europe, which is now trending at roughly the same level of the United States after seeing RevPAR quadruple over the past five months. We're also seeing occupancy of 70% in the Middle East, which is similar to 2019 levels, driven by very strong demand from the Dubai Expo which kicked off in October and runs through March of 2022.

Lastly, occupancy in India, which was below 20%, just a few months ago due to the Delta variant is now trending at almost 60% as we exit October. When you add up the trends both from a geographic and Purpose of Visit perspective coupled with the most recent data on forward bookings, the underlying momentum in the business is clear. And it's consistent with our conviction that we are on a path to full recovery.

Turning to our long-term strategy. As I mentioned earlier, we've been actively positioning Hyatt for the future with intense focus on advancing three pillars of our long-term strategy namely, first to maximize our core business. Second, to integrate new growth platforms. And third to optimize our capital deployment. I cannot recall the quarter where we advanced our long-term strategy as much as we did in the third quarter of this year.

Let me start with the first pillar of our strategy, maximizing our core business, as it underpins everything that we do. We've been particularly focused on three key areas within this pillar to drive performance. First, focusing on the high-end traveler going deeper into the segment not extending outside the segment. Second, driving more business to our direct to our director channels through engagement supported by data and analytics. And third, operating with excellence through agility and responsiveness to market dynamics. Our progress in these areas is not only reflected in the third quarter financial results I commented on earlier, but is also demonstrated in the results of our core metrics as compared to the third quarter of 2019.

Several highlights including market share growth, stronger direct channel mix, a higher percentage of arrivals to our hotels from existing loyalty members, and better comparable margins as compared to the same period in 2019.

The ultimate test is investment by owners and our brands, which is best demonstrated to our net rooms growth and pipeline. Our net rooms growth was 6.9% in the third quarter, again leading the industry with notable openings including the Thomson Hollywood, the Park Hyatt Toronto, and the Hyatt Ziva Riviera Cancun. And our pipeline at 103,000 rooms again expanded from the prior quarter represents an industry leading 41% of our existing property portfolio.

We were also able to achieve significant progress with the second pillar of our long-term strategy integrating new growth platforms through our acquisition of Apple Leisure Group, an exciting new asset like growth platform for Hyatt.

ALG, now as part of Hyatt immediately doubles the number of resorts in our portfolio, increases our European footprint by more than 60% and positions us as the world's largest operator of hotels and the fast growing luxury all inclusive resorts segment. Further, we expected to increase our system wide stabilized leisure transient revenue mix to over 50%.

We also expect the ALG brands to drive accretive rooms well into the future similar to what we've achieved with our Two Roads Hospitality acquisition in 2018, which has been a significant driver of growth for Hyatt this year including conversions and expansion of our pipeline.

In 2021, ALG through the AMR collection is expected to finish the year with net rooms growth of 35% with the addition of 31 hotels, and approximately 8500 rooms, and taking the AMR collection to 101 hotels in total with 33,000 rooms by the end of 2021.

The ALG acquisition represents a brand defining moment in heights more than 60 year history. Much like the company's international expansion into Hong Kong, or the launch of apartheid brand. We are now marking the beginning of a new chapter for Hyatt.

In addition to the exciting growth the acquisition represents for Hyatt and the new experiences the ALG platform provides our guests. The earnings base from ALG also allows us to make significant progress on the third pillar of our long-term strategy, which is to optimize our capital deployment.

We are very encouraged that ALG is on track to outperform its 2019 results in 2021, exceeding the expectations of our underwriting. This earnings base allows us to execute an essential part of our capital strategy to unlock the value of our real estate assets by selling assets over time and prioritizing the reinvestment of proceeds into growth opportunities for Hyatt.

In August, at the same time as the acquisition announcement, we committed to a $2 billion expansion of our asset disposition commitment. The proceeds from these future asset sales will allow us to deleverage our balance sheet on an accelerated basis. As we reduce the debt incurred to fund the ALG acquisition.

We've initiated this effort with two properties currently in the market and other active discussions underway. We feel very confident in our ability to execute on this expanded asset disposition commitment. We realized they were $3 billion in proceeds since our original announcement in 2017. At a very attractive multiple, and we have a high quality and highly desirable asset base that remains on our balance sheet today. As a reminder, the $3 billion commitment was able to parts, $1.5 billion in 2017 and an additional $1.5 billion in 2019.

During September, we completed the sale of two assets. The Hyatt Regency Lake Tahoe and Alila Ventana Big Sur for approximately $500 million in gross proceeds, and reached cumulatively over $3 billion in total gross proceeds from asset sales since 2017 at an average aggregate multiple of 17.4 times. We retained long-term management agreements for both of the hotels that we recently just disposed on and exceeded our disposition target well ahead of schedule.

In summary, we look forward to continuing our track record of realizing proceeds in excess of evaluation implied by the multiple for Hyatt and simultaneously transforming our earnings mix to an expected 80% fee base proportion by the end of 2024.

Importantly, with the earnings from our ALG acquisition, coupled with fees driven by our industry leading growth, we'll be able to achieve this progress while maintaining investment capacity for future opportunities.

Overall, I'm extremely pleased with the progress we are making toward our long-term strategy, as we remain intently focused on executing the three key areas I've outlined as we position ourselves for the future.

Finally, I want to touch upon the owners meeting we recently held a couple of weeks ago at the beautiful Hyatt Regency Huntington Beach Resort. It strong as it's ever been. And the energy from gathering in person was truly palpable. I was struck by the collective optimism we share about the future, and how our purpose of caring for people so they can be their best has resonated with and been felt by our owners during the most severe downturn this industry has ever experienced. Their feedback centered on our attention to listening intently, focusing on the important issues and staying connected to their needs.

We have much to do to ensure we are attracting the best talent in a challenging labor environment to ensure we're doing everything possible to drive market share and operating margins for our brands and owners. And to make sure our systems and services keep pace with quickly shifting trends in technology. I left the meeting feeling energized at the progress we were making, and the opportunities ahead to continue to deliver value to all of our constituents.

I'll conclude my prepared remarks this morning by reiterating my optimism. We made significant progress toward realizing the benefits of our long-term strategy. And as the recovery continues to unfold, we have positioned Hyatt to emerge from this pandemic a stronger and more agile company. Our view to sustainable demand in the future continues to sharpen and with each passing month, our conviction and our enthusiasm grows.

With that, I'll turn it over to Joan to provide additional detail on our operating results. Joan, over to you.

[Joan Bottarini, Chief Financial Officer]

Thanks, Mark. And good morning, everyone. Late Yesterday, we reported a third quarter net income attributable to Hyatt of $120 million and a diluted earnings per share of $1.15. With our results favorably impacted by gains on the sale of real estate of $307 million.

Adjusted EBITDA with $110 million in the third quarter, effectively doubling our adjusted EBITDA from the second quarter, again demonstrating our ability to translate improving demand into a strong increase in earnings.

In a RevPAR environment that is improving, but still challenging. We were able to narrow our adjusted EBITDA decline to only 32% in the third quarter versus the same period in 2019, which is the same as our system wide RevPAR decline of 32%.

Additionally, our adjusted EBITDA margin was 27.4% for the third quarter, an improvement of 50 basis points from the adjusted EBITDA margin of 26.9% we reported in the third quarter of 2019. Serving as yet another marker of operating excellence in a lower demand environment. System wide RevPAR was $94 in the third quarter, representing a 29% increase compared to second quarter. Both occupancy and rate contributed to the sequential growth with occupancy improving by 700 basis points and rate growing by 12%.

The improvement in rate is especially notable as it reached 96% of 2019 levels on a system wide basis. Our based incentive and franchise fees totaled $96 million in third quarter, reaching 71% of 2019 levels with base and franchise fees more fully recovered than RevPAR as a result of our strong net rooms growth over the past two years.

Turning to our segment results, our management and franchising business delivered a combined adjusted EBITDA of $85 million improving 33% from the second quarter. The Americas segment accounted for the vast majority of the sequential growth and recover to approximately 80% of 2019 segment adjusted EBITDA level. Hotels and resort locations were the primary driver of the recovery during the first two months of the quarter, with a more notable improvement from urban locations in September, driven by growing demand for business transient and groups.

Our Europe, Africa, Middle East and Southwest Asia segment also experienced material improvement in the third quarter, as it benefited from the easing of travel restrictions and reopening of borders across Europe. Fees from our European hotels more than doubled from the prior quarter with France and southern Europe leading the recovery. The Asia Pacific segments did not see the same level of improvement as our other two segments and the recovery in this part of the world remains uneven.

Mainland China RevPAR had a strong start to the quarter, trending 4% ahead of 2019 levels in July, before dropping to less than 50% of 2019 levels in August, due to reimpose travel restriction. Demand has improved since with RevPAR, strengthening to 78% of 2019 levels in October. Additionally, the recovery in Asia Pacific excluding Mainland China has progressed at a slower pace than other areas of the world as more stringent travel restrictions remain in place. However, we remain optimistic that results will improve in the region as vaccination rates continue to rise, allowing for restrictions to be eased.

Turning to our owned and leased hotels segment, the business delivered $51 million of adjusted EBITDA for the third quarter, representing an improvement of $39 million from the second quarter. The performance was significantly ahead of expectations, driven by the ingenuity and responsiveness of our teams to market dynamics. Owned and leased RevPAR was a $117 for the third quarter, improving 39% from the second quarter with notable improvement from group revenue, which jumped 87% sequentially and accounted for over 28% of the room night mix.

We previously discussed how strong performance has been in our resorts during the quarter. And it's important to highlight outperformance in some of our larger owned convention hotels as well. In the third quarter, Hyatt Regency Orlando, Hyatt Regency Phoenix, and Grand Hyatt San Antonio collectively had a stronger EBITDA contribution in the third quarter of 2021 as compared to 2019. This is quite notable considering group business accounted for approximately 70% of the rooms revenue mix for these hotels during the third quarter of 2019.

This year, these hotels were still able to generate a significant amount of group business representing 57% of rooms revenue. And we're also able to grow transient revenue nearly 30% above 2019 levels through creative tactics such as repositioning the hotels for families and other leisure business. This is a great example of how we are evolving, go-to-market sales strategies real time to meet the current demand profile and maximize performance of our owned and leased hotels.

Overall excellent revenue management and strong operational execution have resulted a significant margin expansion for our owned and leased hotels. Comparable operating margins were 20.3% in the third quarter, which is an improvement of 490 basis points relative to 2019 levels. Despite RevPAR that was only 75% recovered. Open positions have also contributed to lower operating costs, and we continue to closely monitor the labor environment and are working hard to fill open positions. The situation remains challenging, but we're making progress.

As we mentioned last quarter, we continue to see some pressure on wages. And our general managers have made significant adjustments based on competitive market factors. And the challenge and our response varies by market.

I'd also like to provide an update on our liquidity and cash. As of September 30, our total liquidity inclusive of cash, cash equivalents and short-term investments and combined with revolver borrowing capacity was approximately $4.3 billion, compared with $3.2 billion as of June 30. We received a $254 million U.S. tax refund in July. $491 million of net proceeds from the sale of Hyatt Regency Lake Tahoe and Alila Ventana Big Sur, and raised $575 million in net proceeds from our equity offering in September. We also repaid $250 million in senior notes that matured in August.

In October, we raised $1.75 billion of short-term two and three-year fixed and floating rate notes at an approximate weighted average interest rate of 1.48%. We used $750 million of those proceeds to refinance our 2022 short-term pre-payable bonds, and successfully reduced our interest costs by $12 million annually on the refinancing. Our approximate total liquidity after the debt capital markets proceeds was $5.2 billion at the end of October. On November 1, we closed on the acquisition of ALG and paid cash of $2.7 billion. After the acquisition, and as of today, our total liquidity position remains strong at approximately $2.6 billion, with $1.3 billion of cash, cash equivalents and short-term investments, and $1.3 billion available under the revolver.

Finally, I'd like to make a few additional comments regarding our 2021 outlook. Consistent with our communication in the second quarter, we continue to expect adjusted SG&A to be in the approximate range of $240 million, excluding any bad debt expense or ALG integration costs. We're still refining the ALG integration cost estimate, but expected to be in the range of $5 million to $10 million for the full-year of 2021. With $2 million of that amount already included in the third quarter adjusted SG&A. It's important to note that these costs are non-recurring, and our plan does not include an extensive or costly integration of systems and processes.

We continue to expect capital expenditures for 2021 to be approximately $110 million exclusive of any impact from ALG. We mentioned on our last call that we are pulling forward selected renovation projects to take advantage of the timing of lower displacement during the fourth quarter. And therefore our capital expenditures could actualize slightly higher if our materials and labor needs are secured before the end of the year.

Turning to net rooms growth. We are reaffirming our expectation of rooms growth to be greater than 6% for the full-year exclusive of any impacts from ALG. There is some degree of uncertainty related to supply chain issues, which could push certain openings into the first quarter of 2022. However, greater than 6% remains our best estimate at this time. And we're pleased to be delivering another very strong year of net room's growth. As we turn to 2022, we look forward to sharing more on the progress of our ALG integration efforts. And we'll be providing more detailed disclosures on the ALG business on our next earnings call.

I will conclude my prepared remarks by saying that we're very pleased with our progress in the third quarter and we remain prepared to meet the needs of the recovery and demand profile and maximize our core business. We're proud of the accomplishments we achieve to advanced our long-term strategy and are excited about the value creation ALG brings to Hyatt and are even better positioned today to drive asset-light growth than ever before. Thank you. And with that, I'll turn it back to Blue for Q&A.

[Operator]

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

[Stephen Grambling, Goldman Sachs]

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

[Mark Hoplamazian, President and Chief Executive Officer]

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

[Joan Bottarini, Chief Financial Officer]

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

[Stephen Grambling, Goldman Sachs]

Great.

[Mark Hoplamazian, President and Chief Executive Officer]

Sorry, Stephen. Just in terms of the content of what we're doing and how we're approaching this. A few things that I just want to note, the first is when we underwrote the transaction, we did not assume any cost synergies embedded in our analysis, we recognize that both companies have actually reduced staff significantly across their functions.

And we have and ALG has. And we also recognize that there's great talent in the combined company. And we believe that we can be adding back resources without adding to the total run rate expense base. But we do see a large number of significant value creation opportunities, and they're almost all on the revenue and development side. We're in the middle of doing a number of things. We've had time to plan, but we've operated as separate companies until two days ago.

But we've had the opportunity to at least plan as to how we would go about coordinating our development efforts, our World of Hyatt and unlimited vacation club efforts and of course the talent pool, it remains front and center for us across the board. And we will be extending opportunities across both organizations to all colleagues within the Hyatt family going forward.

But the other thing that we spend a lot of time learning about and really getting more excited about are the capabilities within ALG vacations, and Trisept Solutions, we see a lot of interesting platform opportunities, they have a very strong base of capabilities that are primarily in the packaging and very novel approaches to revenue management and working with third-party channels that we think we can actually apply to existing Hyatt Resorts and not to mention the destination management companies that they operate in different markets.

So we think that there are going to be a lot of opportunities to unlock significant benefits coming through to the Hyatt portfolio out of their capability base and vice versa at the same time.

[Stephen Grambling, Goldman Sachs]

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

[Mark Hoplamazian, President and Chief Executive Officer]

Well, I think we're paying attention to what's going on in the marketplace. So it will not surprise you to hear that the first couple of assets that we've taken to market are leisure focused assets, one resort and one leisure dominant hotel. And we're in discussions on a number of other projects at this point with interested parties. So I feel like there's going to be tremendous interest. And we will have a lot of options as to how we actually pursue this, we have mapped out several different scenarios as to how we will achieve this.

And I can just tell you that our history and practice has been to deliver on our sell down commitments earlier and better, better in terms of valuation and also total realization than we commit to. So I don't expect this to be any different than our history.

[Stephen Grambling, Goldman Sachs]

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

[Operator]

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

[Smedes Rose, Citigroup]

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

[Mark Hoplamazian, President and Chief Executive Officer]

So I'll start with that, and then give it to Joan to talk a little bit about the productivity that we've seen that we've gained over time and what the implications are for the future. The labor market remains really tight, it's tightest in the markets in which we've seen the highest spacing of demand which are primarily leased markets. So if you look at markets, like Orlando, or Austin, San Diego, those kinds of markets where you've seen significant leisure increases, you've also seen the highest wage rate increases, and also the tightest labor markets.

So we still have 1000s of open positions across the country. And we are working hard to hire people at this point. And wage rates have gone up anecdotally between 10% and 20%, depending on where -- which market you're talking about and for which category of labor. So housekeeping, for short has gone up probably on average, low to mid-teens in terms of elevation of wage rates.

And the same is true for entry level cooks and other frontline positions. We believe that this will start to work its way through over the coming months, we do think that that wage rates will be higher. There's no question about that, that's not ambiguous at this point. And it's also true that in an inflationary environment, we do expect to see rates move, we've already seen that with very significant resort rates in particular, which is probably the most the highest demand and the most acute example up 30% or 40% in some cases.

And so you've got a dynamic in which I think the overall economics will actually work well, and we should benefit from inflation over this period of time. And it's also true that we are going to need to continue to reach further and deeper into the communities in which we operate, and hopefully bring a lot of people who are out of working out of school at the moment back into the workforce through the hospitality industry, which is what we're working on and the HLA is working on as well. Joan, you might want to just comment on productivity and what the implications are for the future?

[Joan Bottarini, Chief Financial Officer]

Sure, it's certainly true that we've had significant productivity gains, and some of which had been helped by the labor challenges. And over time, as we make progress on the actions that Mark had described, that will help to moderate some of the guest impact that's currently being experienced right now because of the labor challenges. But there's also longer-term structural modifications that we've made to improve productivity, which I've commented on before, but I'll just remind you, clustering of overhead positions across hotels in certain markets, and the works and investment on our digital capabilities, which has also helped to improve productivity.

And the way in which we're approaching F&B options into the most profitable venues and outlets in our hotels, that has led to both exceeding guests expectations as it relates to SMB offerings, but also helping to improve productivity. So all those items that I just relayed are stickier, and will lead to improved margins over time, even when the labor situation dissipates.

[Smedes Rose, Citigroup]

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

[Mark Hoplamazian, President and Chief Executive Officer]

Sure. So overall, we are running at around 70% direct channel, and the growth in direct channel this year. So just to put some context around this. Last year, we had leisure took off. And it was from varied sources. And specifically since I would say that the -- there is a significant cohort of our world of Hyatt members that are business travelers, it wasn't the business travelers that were primarily traveling in the initial part of the recovery last year.

So over the course of 2020, we were in I've described this before, we were in discovery mode, trying to identify where demand was coming from and how to both capture that and maximize our both capture rate, but also how we could engage those guests going forward. And what we've seen this year is a transition, we've now seen a much higher incidence of our own loyalty members traveling, which has led to a very significant increase from last year to this year of the proportion of our room nights that are coming through our loyalty program.

I don't have the exact figure, but it's around 40% of the total this year that is coming from mobile Hyatt than that range. And I think the other thing that I would tell you is that the direct channel growth has exceeded OTA growth as a rate since beginning of the year, significantly, so we are seeing a real transition away from what turned out to be a higher level of third party channel access. Last year, while we were, as I described it, discovering demand to really getting back to getting see our members back on the road and also being able to engage with them.

And especially with the ALG acquisition, being able to serve a lot more of their leisure purposes visit trips, starting immediately. So we're excited about all of that and think that this will accelerate the penetration for the whole system. And allow us to have a deeper relationship with our core customer base.

[Smedes Rose, Citigroup]

Thank you for that detail.

[Operator]

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

[Thomas Allen, Morgan Stanley]

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

[Mark Hoplamazian, President and Chief Executive Officer]

Absolutely. I have -- along with Alejandro Reyna, who is the CEO and President of ALG. Together, we have visited with owners that own I would say a bit over 90%, somewhere between 90% and 95% of all their properties. One way in which we've been able to do that, by the way is that over 80% of their hotels are owned by owners who own more than one. So which just also demonstrates the repeat customer nature of their owner commitments.

And I am telling you, that response has been phenomenal, actually, even stronger than I had hoped. Because I think that there's several dynamics here. The first is they see the network effect benefiting their hotels, both through world of Hyatt and our customer base, but also the broader capability set that we've gotten on a global basis. And they see that as strengthening the proposition for guests coming to their hotels, the AMR collection hotels.

They do see channel benefits, so we believe that we will be able to drive down channel costs by increasing direct channel access, even as we continue to optimize what's available through the ALG vacations platform, which is really significant. The capability said that ALG vacations is not just that packaging capability, it's also revenue management and the linking of other pieces of the holiday experience, namely the destination management piece.

On the ground transportation and excursion development that is an essential part of the decision to buy these kinds of vacations, and they recognize that is going to get now get exposed to a much broader base of customers. And finally, there is a certain element of I don't want to overstate this. So I say this humbly.

But there's a certain validation that comes with of the segments of this property type with our acquisition, and the Hyatt name being associated with and behind the Hyatt organization being behind ALG, so that they believe, especially the owners in the Americas believe that this is the beginning of what will become the institutionalization, if you will of the ownership of all inclusive assets. Because if you look backwards in time, this is a segment that has not been widely owned by institutional owners in the Americas.

Most of the ownership groups are wealthy families and large, private organizations, but not institutional owners. That's different in Europe, but not yet true in the Americas. And that expansion of institutional interest, they believe is a significant step for them to be able to monetize some of their assets so that they can turn around and invest behind new developments.

In every single meeting that I had. We ended up talking about new opportunities for the vast majority of which were ALG related. AMR collection related, and some are Hyatt related as well, because some of these owners have hotels that are not all inclusive resorts. So I am really excited about first demonstrating to these owners what we're able to do in terms of benefiting them directly. But secondly, the commitment and the enthusiasm that they hold for AMR is really -- for ALG is really remarkable. So I'm super encouraged.

[Thomas Allen, Morgan Stanley]

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

[Mark Hoplamazian, President and Chief Executive Officer]

Well, I guess, first of all, I'll just reiterate what you just said that you're right, we're not alone from holder we didn't designed to be. Secondly, we took really significant care and in depth on the rating on that asset -- it was obviously a very high price per key, and a very a much lower multiple of current earnings, because this year has been extraordinary.

And so we map out a number of projects that we thought would really enhance the fundamental future for the property, which is going to require some capital, and not a huge amount of capital, but high return investments that really have to be done in a very best way. And so what we thought was, there's a lot of interest in this type of asset right now, we have built a really compelling plan for the hotel, including some enhancements with respect to how we're going to market with a hotel.

And we also learned that hosts, which is one of our biggest partners, and as an owner, had interest in the hotel, and we ended up in discussions with them. And they actually saw the same opportunity that we did. They have experienced executing on these kinds of property improvements, and we have confidence that there'll be able to do that. And we earned. So we bought the asset, we earned a mid-teens return while we owned it. And we sold it for a profit, despite keeping a very long-term management agreement. So from our perspective, we just ended up securing a very long-term presence in this impossible to replace asset with a partner who's going to put money in and enhance the proposition of the asset for our customer base, and also the returns going forward. So it felt like a triple win to us. And that's really the whole story.

[Thomas Allen, Morgan Stanley]

Very helpful. Thank you.

[Operator]

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

[Vince Ciepiel, Cleveland Research]

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

[Joan Bottarini, Chief Financial Officer]

Sure, thanks for the question. Certainly very, very great results and contributing $51 million of EBITDA on the quarter, which is very great to see. As we think about the margins, there are -- the temporary factors that we reviewed just a moment ago relating to labor challenges that we've been having. But also, when we think about the operational execution, and what I described as the substitution and the use of the assets in different ways by our managers has certainly led to those strong results.

The rates in the portfolio remained flat in the quarter, despite the decline in RevPAR. So that dynamic definitely helped to lead to the flow through game. And there's a greater mix of rooms revenue. So that'll be a little bit of a headwind as we welcome more groups into the coming quarters, and obviously have catering and more F&B into those hotels that are gathering that demand.

All of the longer-term structural modifications I talked about earlier, those will be sustaining. So we've communicated before that we expect about a 100 to 300 basis point improvement over time on a stabilized basis. So there's some sticky items. And there's also some temporal items that that are result of the great performance of our managers in the field.

One thing I would mention about the performance of the owned and leased portfolio is that the sales of the two assets, Lake Tahoe and Alila Ventana, they had seasonally, those two assets are very, very strong in the third quarter, and they contributed about $10 million of EBITDA those two assets alone. So as you think about picture those now translating into asset light earnings and management fees for those long-term contracts. But we will be not be recognizing owned results from those assets given the sales.

[Mark Hoplamazian, President and Chief Executive Officer]

If I could just add one quick note on the owned and leased portfolio, which is relatively it's got a balance of urban and some and in group concentration within our own portfolio. The group results this past quarter were really amazing to see that the in the quarter for the quarter demand was a significant net positive over the course of the quarter. Despite the fact that we saw a lot of cancellations in August into September. And specifically, we had over $20 million of expansion of group realization that is actual group's attendance showing up and higher level of spend, which offset about $20 million of cancellations in the quarter, which is extraordinary.

So the current demand for group as we see it now is really strong. And if we look at the tentatives, the tentatives for larger group sizes. And we're going from like two-thirds of our tentatives looking like they would be 100 rooms or less to a third of them being a 100 rooms or less. So we really see a great deal of momentum there, which I think will be good well for as we head into next year.

[Vince Ciepiel, Cleveland Research]

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

[Mark Hoplamazian, President and Chief Executive Officer]

Yes, so pipeline composition is shifting. And we are going through the combined pipeline and the opening schedule as we speak. And so we won't be able to really comment on specific levels until we talk on the next earnings call. But I guess what I would tell you is the current existing pipeline that ALG has this is significant. And they have a lot of very far advanced projects. So they have 24 hotels that are technically in pipeline, they have a same rigorous screen that we do, which is has to be fully financed, signed in financed in order to make it into pipeline counting as a pipeline hotel.

But they have 40 others that are in various stages, some of which I think we would count as pipeline. Even though they're very conservative about it. So we're still working through that. And we'll be able to talk a little bit more in detail on the next call. In the short-term, a bit challenging to say whether '22 will be an accretive growth to rate year, but over the medium-term the next several years. We do think it's going to be accretive. We think it will be additive to our own growth rate.

[Vince Ciepiel, Cleveland Research]

Thank you very much.

[Noah Hoppe, Senior Vice President, Investor Relations]

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

[Operator]

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

[Chad Beynon, Macquarie]

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

[Joan Bottarini, Chief Financial Officer]

Yes, sure. I'll start and then I'll let Mark add anything he'd like to add. We generated $10 million of incentive fees in the quarter and on a stabilized basis. In 2019 that is we were fully recovered in franchise fees, base fees were about 80% down -- excuse me, recover to 80% and incentive fees were recovered almost 30%. So recognize the reason behind your question. If you look at on a stabilized basis, the U.S. has generates about 25% of our incentive fees on a stabilized basis. And the remainder comes from international markets. And so as we look at borders reopening and recovery momentum gaining in those markets, we'll definitely see recovery over the coming quarters going forward.

On your specific question relating to the U.S., we're about 24% recovered in the U.S. specifically on incentive fees. So we've got some room to grow here. And I don't have a specific number relative to those hurdles. But it sounds like you're clued into the fact that you guys have more hurdles, international contracts are earning incentive fees at the first dollar of GOP generally speaking. So it will ramp up, but it's going to take some time over the coming quarters.

[Chad Beynon, Macquarie]

Okay, perfect. Thank you very much.

[Joan Bottarini, Chief Financial Officer]

You're welcome.

[Operator]

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

[Noah Hoppe, Senior Vice President, Investor Relations]

Thank you everyone for taking the time to join us today. Take care and we look forward to speaking with you again soon.

[Operator]

This concludes today's conference call. Thank you for participating and have a wonderful day. You may all disconnect.