# Hyatt Hotels Corp (H) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Hyatt Hotels Corp's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1468174/000146817422000016/h-20211231.htm
Accession: 0001468174-22-000016
Filing date: 2022-02-17
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/H/
All MD&A years: /company/H/mda/
Next year: /company/H/mda/fy2022/ (FY 2022)

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with Part IV, Item 15, "Exhibits and Financial Statement Schedule—Consolidated Financial Statements." For our discussion and analysis of our financial condition and results of operations for the year ended December 31, 2020 compared to the year ended December 31, 2019, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2020 Form 10-K. In addition to historical data, this discussion contains forward-looking statements about our business, operations, and financial performance based on current expectations that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those discussed in "Disclosure Regarding Forward-Looking Statements" and Part I, Item 1A, "Risk Factors" included elsewhere in this annual report.

Overview

At December 31, 2021, our hotel portfolio consisted of 1,162 hotels (284,944 rooms), including:

•438 managed properties (133,373 rooms), all of which we operate under management and hotel services agreements with third-party property owners;

•546 franchised properties (91,715 rooms), all of which are owned by third parties that have franchise agreements with us and are operated by third parties;

•28 owned properties (12,113 rooms), 1 finance leased property (171 rooms), and 5 operating leased properties (1,965 rooms), all of which we manage;

•22 managed properties and 2 franchised properties owned or leased by unconsolidated hospitality ventures (8,039 rooms);

•12 franchised properties (2,090 rooms) that are operated by an unconsolidated hospitality venture in connection with a master license agreement by Hyatt, 4 of these properties (894 rooms) are leased by the unconsolidated hospitality venture; and

•108 all-inclusive resorts (35,478 rooms), including 96 owned by a third party (30,471 rooms), 8 owned by a third party in which we hold common shares (4,098 rooms), and 4 leased properties (909 rooms).

Our property portfolio also included:

•15 vacation ownership properties under the Hyatt Residence Club brand and operated by third parties;

•36 residential properties, which consist of branded residences and serviced apartments. We manage all of the serviced apartments and those branded residential units that participate in a rental program with an adjacent Hyatt-branded hotel; and

•39 condominium properties for which we provide services for the rental programs and/or homeowners associations (including 1 unconsolidated hospitality venture).

Additionally, through strategic relationships, we provide certain reservation and/or loyalty program services to hotels that are unaffiliated with our hotel portfolio and operate under other tradenames or marks owned by such hotels or licensed by third parties.

We believe our business model allows us to pursue more diversified revenue and income streams balancing both the advantages and risks associated with these lines of business. Our expertise and experience in each of these areas gives us the flexibility to evaluate growth opportunities across our lines of business. Growth in the number of management and franchise agreements and earnings therefrom typically results in higher overall returns on invested capital because the capital investment under a typical management or franchise agreement is not significant. The capital required to build and maintain hotels we manage or franchise for third-party owners and franchisees is typically provided by the owner of the respective property with minimal capital required by us as the manager or franchisor. In certain instances, Hyatt has provided funding to owners for the acquisition and development of hotels that Hyatt will manage or franchise in the form of cash, debt repayment or performance guarantees, preferred equity, or mezzanine debt. During periods of increasing demand, we do not share fully in the incremental profits of hotel operations for hotels we manage for third-party owners as our fee arrangements generally include a base amount that is, typically, a percentage of revenue from the subject hotel and an incentive fee that is, typically, a percentage of hotel profits after satisfying certain financial return thresholds to be earned by the owner, depending on the structure and terms of the management agreement. We do not share in the benefits of increases in profits from franchised properties because franchisees

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pay us an initial application fee and ongoing royalty fees that are calculated as a percentage of gross room revenues, and also at times, as a percentage of food and beverage revenues, with no fees based on profits. Disputes or disruptions may arise with third-party owners and franchisees of hotels we manage, franchise, or license to and these disputes can result in termination of the relevant agreement.

With respect to property ownership, we believe ownership of selected hotels in key markets enhances our ability to control our brand presence in these markets. Ownership of hotels allows us to capture the full benefit of increases in operating profits during periods of increasing demand and room rates. The cost structure of a typical hotel includes substantial fixed costs, so as demand and room rates increase over time, the rate of growth in operating profits typically is higher than the rate of growth of revenues. The profits realized from our owned and leased hotels are generally more significantly affected by economic downturns and declines in revenues than the management and franchise fees earned from our managed and franchised properties. This is because we absorb the full impact of declining profits for our owned and leased hotels whereas our management and franchise fees do not have the same level of downside exposure to declining hotel profitability. Hotel ownership is more capital intensive than managing or franchising hotels for third-party owners and franchisees, as we are responsible for the costs and all capital expenditures for our owned and leased hotels. See also "—Principal Factors Affecting Our Results of Operations—Expenses." and Part I, Item 1A, "Risk Factors—Risks Related to Our Business—We are exposed to the risks resulting from significant investments in owned and leased real estate, which could increase our costs, reduce our profits, limit our ability to respond to market conditions, or restrict our growth strategy."

For the years ended December 31, 2021 and December 31, 2020, 76.3% and 83.7% of our revenues, respectively, were derived from operations in the United States. At December 31, 2021 and December 31, 2020, 53.6% and 80.4% of our long-lived assets, respectively, were located in the United States.

We report our consolidated operations in U.S. dollars. Amounts are reported in millions, unless otherwise noted. Percentages may not recompute due to rounding, and percentage changes that are not meaningful are presented as "NM." Constant currency disclosures throughout Management's Discussion and Analysis of Financial Condition and Results of Operations are non-GAAP measures. See "—Key Business Metrics Evaluated by Management—Constant Dollar Currency" below for further discussion of constant currency disclosures. We manage our business within five reportable segments, see Part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 19 to our Consolidated Financial Statements."

Overview of the Financial Impact of the COVID-19 Pandemic

The COVID-19 pandemic and its impacts have significantly reduced global travel, demand for hotel rooms, and travel experiences, and have had a material impact on global commercial activity across the travel, lodging, and hospitality industries, all of which has had, and is expected to continue to have, a material impact on our business, results of operations, cash flows, and financial condition. While demand levels continue to recover from the lowest levels experienced at the onset of the pandemic, we expect demand for hospitality services could continue to be uneven in the near term as there remains uncertainty as to the pace of recovery for lodging and travel-related experiences. To the extent cases of COVID-19 persist in various regions around the globe, new COVID-19 variants emerge, and/or restrictions remain or are put in place in certain markets, we expect to experience demand volatility.

Our segment revenues, comparable RevPAR, and Adjusted EBITDA during the year ended December 31, 2021 continue to be impacted by the COVID-19 pandemic, and performance remains significantly below pre-COVID-19 pandemic results. In addition, the COVID-19 pandemic has created worldwide challenges related to rising costs for certain labor and supply chain expenses, and these increased costs may not be fully offset by increases in revenues in our business.

While uncertainty surrounding the ongoing recovery progression remains, we are optimistic about the continued global recovery which is led by robust leisure demand and growing momentum for business transient and group travel. Leisure demand improved sequentially over the course of 2021, and the fourth quarter of 2021 exceeded 2019 levels. Throughout 2021, we have seen group bookings production improve compared to 2020 at our full service managed hotels in the Americas, including owned and leased hotels, with the fourth quarter net bookings for current and future years at the highest level since the onset of the COVID-19 pandemic, though still significantly lower than pre-COVID-19 pandemic levels.

Although the recovery of global lodging demand is underway, we continue to expect demand to be varied and uneven in the current environment and expect that the COVID-19 pandemic will continue to have a material negative impact on our future results for a period of time that we are currently unable to predict.

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Key Business Metrics Evaluated by Management

Revenues

We primarily derive our revenues from hotel management services, licensing of our portfolio of brands to franchisees, owned and leased hotel operations, distribution and destination management services, and a paid membership club offering. Management uses revenues to assess the overall performance of our business and to analyze trends such as consumer demand, brand preference, and competition. For a detailed discussion of our primary revenue sources, see "—Principal Factors Affecting Our Results of Operations—Revenues."

Net Income (Loss) Attributable to Hyatt Hotels Corporation

Net income (loss) attributable to Hyatt Hotels Corporation represents the total earnings or profits generated by our business or total loss incurred. Management uses net income (loss) to analyze the performance of our business on a consolidated basis.

Adjusted EBITDA and EBITDA

We use the terms Adjusted EBITDA and EBITDA throughout this annual report. Adjusted EBITDA and EBITDA, as we define them, are non-GAAP measures. We define consolidated Adjusted EBITDA as net income (loss) attributable to Hyatt Hotels Corporation plus our pro rata share of unconsolidated owned and leased hospitality ventures Adjusted EBITDA based on our ownership percentage of each owned and leased venture, adjusted to exclude the following items:

•interest expense;

•benefit (provision) for income taxes;

•depreciation and amortization;

•amortization of management and franchise agreement assets and performance cure payments, which constitute payments to customers ("Contra revenue");

•revenues for the reimbursement of costs incurred on behalf of managed and franchised properties;

•costs incurred on behalf of managed and franchised properties that we intend to recover over the long term;

•equity earnings (losses) from unconsolidated hospitality ventures;

•stock-based compensation expense;

•gains (losses) on sales of real estate and other;

•asset impairments; and

•other income (loss), net

We calculate consolidated Adjusted EBITDA by adding the Adjusted EBITDA of each of our reportable segments and eliminations to corporate and other Adjusted EBITDA. See "—Segment Results."

Our board of directors and executive management team focus on Adjusted EBITDA as one of the key performance and compensation measures both on a segment and on a consolidated basis. Adjusted EBITDA assists us in comparing our performance over various reporting periods on a consistent basis because it removes from our operating results the impact of items that do not reflect our core operations both on a segment and on a consolidated basis. Our President and Chief Executive Officer, who is our chief operating decision maker ("CODM"), also evaluates the performance of each of our reportable segments and determines how to allocate resources to those segments, in significant part, by assessing the Adjusted EBITDA of each segment. In addition, the compensation committee of our board of directors determines the annual variable compensation for certain members of our management based in part on consolidated Adjusted EBITDA, segment Adjusted EBITDA, or some combination of both.

We believe Adjusted EBITDA is useful to investors because it provides investors with the same information that we use internally for purposes of assessing our operating performance and making compensation decisions and facilitates our comparison of results with results from other companies within our industry.

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Adjusted EBITDA excludes certain items that can vary widely across different industries and among companies within the same industry including interest expense and benefit (provision) for income taxes, which are dependent on company specifics including capital structure, credit ratings, tax policies, and jurisdictions in which they operate; depreciation and amortization which are dependent on company policies including how the assets are utilized as well as the lives assigned to the assets; Contra revenue which is dependent on company policies and strategic decisions regarding payments to hotel owners; and stock-based compensation expense which varies among companies as a result of different compensation plans companies have adopted. We exclude revenues for the reimbursement of costs and costs incurred on behalf of managed and franchised properties which relate to the reimbursement of payroll costs and for system-wide services and programs that we operate for the benefit of our hotel owners as contractually we do not provide services or operate the related programs to generate a profit over the terms of the respective contracts. Over the long term, these programs and services are not designed to impact our economics, either positively or negatively. Therefore, we exclude the net impact when evaluating period-over-period changes in our operating results. Adjusted EBITDA includes costs incurred on behalf of our managed and franchised properties related to system-wide services and programs that we do not intend to recover from hotel owners. Finally, we exclude other items that are not core to our operations, such as asset impairments and unrealized and realized gains and losses on marketable securities.

Adjusted EBITDA and EBITDA are not substitutes for net income (loss) attributable to Hyatt Hotels Corporation, net income (loss), or any other measure prescribed by GAAP. There are limitations to using non-GAAP measures such as Adjusted EBITDA and EBITDA. Although we believe that Adjusted EBITDA can make an evaluation of our operating performance more consistent because it removes items that do not reflect our core operations, other companies in our industry may define Adjusted EBITDA differently than we do. As a result, it may be difficult to use Adjusted EBITDA or similarly named non-GAAP measures that other companies may use to compare the performance of those companies to our performance. Because of these limitations, Adjusted EBITDA should not be considered as a measure of the income (loss) generated by our business. Our management compensates for these limitations by referencing our GAAP results and using Adjusted EBITDA supplementally. See our consolidated statements of income (loss) in our consolidated financial statements included elsewhere in this annual report.

See below for a reconciliation of net income (loss) attributable to Hyatt Hotels Corporation to EBITDA and a reconciliation of EBITDA to consolidated Adjusted EBITDA.

Adjusted Selling, General, and Administrative Expenses

Adjusted selling, general, and administrative expenses, as we define it, is a non-GAAP measure. Adjusted selling, general, and administrative expenses exclude the impact of deferred compensation plans funded through rabbi trusts and stock-based compensation expense. Adjusted selling, general, and administrative expenses assist us in comparing our performance over various reporting periods on a consistent basis because it removes from our operating results the impact of items that do not reflect our core operations, both on a segment and consolidated basis. See "—Results of Operations" for a reconciliation of selling, general, and administrative expenses to Adjusted selling, general, and administrative expenses.

Comparable Hotels

"Comparable system-wide hotels" represents all properties we manage or franchise, including owned and leased properties, and that are operated for the entirety of the periods being compared and that have not sustained substantial damage, business interruption, or undergone large scale renovations during the periods being compared or for which comparable results are not available. Effective December 31, 2021, hotels that suspended operations due to the COVID-19 pandemic and have not yet re-opened are no longer included in our definition of comparable system-wide hotels. We may use variations of comparable system-wide hotels to specifically refer to comparable system-wide Americas full service hotels, including our wellness resorts, our select service hotels, or our all-inclusive resorts, for those properties that we manage or franchise within the Americas management and franchising segment, comparable system-wide ASPAC full service or select service hotels for those properties we manage or franchise within the ASPAC management and franchising segment, or comparable system-wide EAME/SW Asia full service or select service hotels for those properties that we manage or franchise within the EAME/SW Asia management and franchising segment. "Comparable owned and leased hotels" represents all properties we own or lease and that are operated and consolidated for the entirety of the periods being compared and have not sustained substantial damage, business interruption, or undergone large scale renovations during the periods being compared or for which comparable results are not available. Comparable system-wide hotels and comparable owned and leased hotels are commonly used as a basis of measurement in our industry. "Non-comparable system-wide hotels" or "non-comparable owned and leased hotels" represent all hotels that do not meet the respective definition of "comparable" as defined above.

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Constant Dollar Currency

We report the results of our operations both on an as-reported basis, as well as on a constant dollar basis. Constant dollar currency, which is a non-GAAP measure, excludes the effects of movements in foreign currency exchange rates between comparative periods. We believe constant dollar analysis provides valuable information regarding our results as it removes currency fluctuations from our operating results. We calculate constant dollar currency by restating prior-period local currency financial results at the current period's exchange rates. These restated amounts are then compared to our current period reported amounts to provide operationally driven variances in our results.

Average Daily Rate

ADR represents hotel room revenues, divided by the total number of rooms sold in a given period. ADR measures the average room price attained by a hotel, and ADR trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels. ADR is a commonly used performance measure in our industry, and we use ADR to assess the pricing levels that we are able to generate by customer group, as changes in rates have a different effect on overall revenues and incremental profitability than changes in occupancy, as described below.

Occupancy

Occupancy represents the total number of rooms sold divided by the total number of rooms available at a hotel or group of hotels. Occupancy measures the utilization of a hotel's available capacity. We use occupancy to gauge demand at a specific hotel or group of hotels in a given period. Occupancy levels also help us determine achievable ADR levels as demand for hotel rooms increases or decreases.

RevPAR

RevPAR is the product of the ADR and the average daily occupancy percentage. RevPAR does not include non-room revenues, which consist of ancillary revenues generated by a hotel property, such as food and beverage, parking, and other guest service revenues. Our management uses RevPAR to identify trend information with respect to room revenues from comparable properties and to evaluate hotel performance on a regional and segment basis. RevPAR is a commonly used performance measure in our industry.

RevPAR changes that are driven predominantly by changes in occupancy have different implications for overall revenue levels and incremental profitability than do changes that are driven predominantly by changes in average room rates. For example, increases in occupancy at a hotel would lead to increases in room revenues and additional variable operating costs, including housekeeping services, utilities, and room amenity costs, and could also result in increased ancillary revenues, including food and beverage. In contrast, changes in average room rates typically have a greater impact on margins and profitability as average room rate changes result in minimal impacts to variable operating costs.

Net Package ADR

Net Package ADR represents net package revenues, divided by the total number of rooms sold in a given period. Net Package ADR measures the average room price attained by a hotel, and Net Package ADR trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels. Net Package ADR is a commonly used performance measure in our industry, and we use Net Package ADR to assess the pricing levels that we are able to generate by customer group, as changes in rates have a different effect on overall revenues and incremental profitability than changes in occupancy, as described above.

Net Package RevPAR

Net Package RevPAR is the product of the net package ADR and the average daily occupancy percentage. Net Package RevPAR generally includes revenue derived from the sale of package revenue comprised of rooms revenue, food and beverage, and entertainment, net of compulsory tips paid to employees. Our management uses Net Package RevPAR to identify trend information with respect to room revenues from comparable properties and to evaluate hotel performance on a regional and segment basis. Net Package RevPAR is a commonly used performance measure in our industry.

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Net Financed Contracts

Net Financed Contracts represent Unlimited Vacation Club contracts signed during the period for which an initial cash down payment has been received and the remaining balance is contractually due in monthly installments over an average term of less than 4 years. The Net Financed Contract balance is calculated as the unpaid portion of membership contracts reduced by expenses related to fulfilling the membership club contracts and further reduced by an allowance for future estimated uncollectible installments. Net Financed Contract balances are not reported on our consolidated balance sheets as our right to collect future installments is conditional on our ability to provide continuous access to member benefits at AMR Collection resorts over the contract term, and the associated expenses to fulfill the membership contracts become liabilities of the Company only after the installments are collected. We believe Net Financed Contracts is useful to investors as it represents an estimate of future cash flows due in accordance with contracts signed in the current period. At December 31, 2021, the Net Financed Contract balance not recorded on our consolidated balance sheet was $133 million.

Net Deferrals

Net Deferrals represent the change in contract liabilities associated with the Unlimited Vacation Club membership contracts less the change in deferred cost assets associated with the contracts. The contract liabilities and deferred cost assets are recognized as revenue and expense, respectively, on our consolidated statements of income (loss) over the customer life, which ranges from 3 to 25 years.

Principal Factors Affecting Our Results of Operations

Our revenues and expenses are affected by a variety of factors. Revenues are principally affected by consumer demand, which is closely linked to economic conditions and is sensitive to business and personal discretionary spending levels. Certain expenses associated with our business, including interest, rent, property taxes, insurance, certain salaries and wages, and utilities costs, are relatively fixed and may increase at a greater rate than our revenues and/or may not be able to be reduced at the same rate as declining revenues. The fixed-cost nature of these expenses limits our ability to offset reductions in revenue through cost-cutting measures, which could adversely affect our net cash flows and profits. This effect can be especially pronounced during periods of economic contraction or slow economic growth, and when demand rapidly and significantly decreases, as we experienced with the onset of the COVID-19 pandemic. See Part I, Item 1A, "Risk Factors—Risks Related to the Hospitality Industry," "Risk Factors—Risks Related to Our Business," and "Risk Factors—Risks Related to the COVID-19 Pandemic."

Revenues

We primarily derive our revenues from the following sources:

Revenues from hotel operations.    Represents revenues derived from hotel operations, including room rentals and food and beverage sales and other ancillary revenues at our owned and leased properties. Revenues from the majority of our hotel operations depend heavily on demand from group and transient travelers, as discussed below. Revenues from our owned and leased hotels are primarily derived from hotel operations.

Revenues from room rentals and ancillary revenues are primarily derived from three categories of customers: transient, group, and contract. Transient guests are individual travelers who are traveling for business or leisure. Our group guests are traveling for group events that reserve a minimum of 10 rooms for meetings or social functions sponsored by associations, corporate, social, military, educational, religious, or other organizations. Group business usually includes a block of room accommodations as well as other ancillary services, such as catering and banquet services. Our contract guests are traveling under a contract negotiated for a block of rooms for more than 30 days in duration at agreed-upon rates. Airline crews are typical generators of contract demand for our hotels.

Management, franchise, and other fees.    Represents revenues derived from fees earned from hotels and residential units managed worldwide, usually under long-term management agreements; franchise fees received in connection with the franchising of our brands, usually under long-term franchise agreements; termination fees; license fees received in connection with the licensing of the Hyatt brand names through our co-branded credit card program and vacation ownership properties; and fees from marketing services provided to certain AMR Collection resorts. For a detailed discussion of our management and franchise fees, see Part I, Item 1, "Business—Management Agreements—Hotel Management Agreements Fees" and Part I, Item 1, "Business—Franchise Agreements."

Distribution and destination management revenues. Represents revenues derived from the offering of travel products and services through ALG Vacations. Offerings primarily include some or all of the following: air transportation, hotel

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accommodations primarily provided by third-party resorts, travel insurance, ground transportation, car rental reservations, and excursions provided by third parties.

Other revenues.    Represents revenues primarily related to our residential management operations for condominium units, our Unlimited Vacation Club paid membership club offering member benefits exclusively at AMR Collection resorts in Latin America and the Caribbean, our co-branded credit card program, and the Exhale spa and fitness business, which was sold during the year ended December 31, 2020.

Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties.    Represents revenues for the reimbursement of costs incurred on behalf of third-party owners and franchisees. These reimbursed costs relate primarily to payroll at managed properties where we are the employer, as well as system-wide services and the loyalty program operated on behalf of owners. We recognize these revenues in revenues for the reimbursement of costs incurred on behalf of managed and franchised properties and the corresponding costs in costs incurred on behalf of managed and franchised properties on our consolidated statements of income (loss).

Intersegment eliminations.    Represents management fee revenues and expenses related to our owned and leased hotels and promotional award redemption revenues and expenses related to our co-branded credit card program at our owned and leased hotels, which are eliminated in consolidation.

RevPAR Statistics

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[[/GREPCENT_TABLE]]

System-wide RevPAR increased 66.5% during 2021, compared to 2020, driven by increased demand due to the continued recovery from the COVID-19 pandemic. Leisure demand continues to lead the recovery as travel restrictions have eased in certain markets. See "—Segment Results" for detailed discussion of RevPAR by segment.

Our comparable system-wide hotels RevPAR of $78 and $47 for the years ended December 31, 2021 and December 31, 2020, respectively, remain significantly below pre-COVID-19 pandemic levels of previously reported system-wide hotels RevPAR of $136 for the year ended December 31, 2019. While uncertainty surrounding the shape of the recovery progression remains, we have experienced growing momentum in our business transient and group business, and it is our expectation that both will improve in 2022, but the recovery may continue to be uneven. Leisure transient demand is expected to remain strong, and the fourth quarter of 2021 has exceeded 2019 levels. However, demand may be varied and uneven in the current environment.

Competition.    The hospitality industry is highly competitive. Increased supply can put significant pressure on ADR at our properties as well as those of our competitors. Increasingly, we face competition from new channels of distribution in the travel industry, including large companies that offer travel services as part of their business model and peer-to-peer inventory sources, as well as industry consolidation. We believe our brand strength and ability to manage our operations in an efficient manner will help us to continue competing successfully within the hospitality industry.

Agreements with third-party owners and franchisees and relationships with developers.    We depend on our long-term management and franchise agreements with third-party owners and franchisees for a significant portion of our management and franchising fee revenues. The viability of our management and franchising business depends on our ability to maintain good relationships with third-party property owners and franchisees. Our relationships with these third parties also generate new relationships with developers and opportunities for property development that can support our growth. We believe we have good relationships with our third-party owners, franchisees, and developers in all of our segments and are committed to the

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continued growth and development of these relationships. These relationships exist with a diverse group of owners, franchisees, and developers and are not heavily concentrated with any particular third party.

Access to capital.    The hospitality industry is a capital-intensive business that requires significant amounts of capital expenditures to develop, maintain, and renovate properties. Third-party owners and franchisees are required to fund these capital expenditures for the properties they own in accordance with the terms of the applicable management or franchise agreement. Access to the capital that we or our third-party owners, franchisees, or development partners need to finance the construction of new properties or to maintain and renovate existing properties is critical to the continued growth of our business and our revenues. The availability of capital or the conditions under which we or our third-party owners, franchisees, or development partners can obtain capital can have a significant impact on the overall level, cost, and pace of future development and therefore the ability to grow our revenues.

Expenses

We primarily incur the following expenses:

Owned and leased hotels expenses.    Reflects the expenses of our consolidated owned and leased hotels. Expenses to operate our hotels include rooms expenses, food and beverage costs, other support costs, and property expenses. Rooms expenses generally includes compensation costs for housekeeping, laundry, and front desk staff and supply costs for guest room amenities and laundry. Food and beverage costs include costs for wait and kitchen staff and food and beverage products. Other support expenses consist of costs associated with property-level management, including deferred compensation plans for certain employees that are funded through contributions to rabbi trusts, utilities, sales and marketing, hotel spa operations, parking and other guest recreation, entertainment, and services. Property expenses include property taxes, repairs and maintenance, rent, and insurance.

Distribution and destination management expenses.    Consists of expenses related to our ALG Vacations business, primarily costs directly related to the selling of travel products and services such as various distribution expenses, including charter air expenses, credit card fees, commissions, and destination management cost of sales. Additionally, distribution and destination management expenses include compensation expenses, professional fees, sales and marketing expenses, and technology expenses.

Depreciation and amortization expenses.    Represents non-cash expenses that primarily consist of depreciation of fixed assets such as buildings, furniture, fixtures, and equipment at our consolidated owned and leased hotels. Amortization expenses primarily consists of amortization of management and franchise agreement intangibles. Changes in depreciation and amortization expenses may be driven by renovations of existing properties, acquisition or development of new properties and/or businesses, or the disposition of existing properties through sale or closure.

Other direct costs.    Represents expenses primarily related to our residential management operations for our condominium units, co-branded credit card program, and direct costs associated with the Unlimited Vacation Club paid membership club offering member benefits exclusively at AMR Collection resorts in Latin America and the Caribbean. Other direct costs also include the Exhale spa and fitness business, which was sold during the year ended December 31, 2020.

Selling, general, and administrative expenses.    Consists primarily of compensation expenses, including deferred compensation plans for certain employees that are funded through contributions to rabbi trusts, for our corporate staff and personnel supporting our business segments, including regional offices that support our management and franchising segments; professional fees, including consulting, audit, and legal fees; travel and entertainment expenses; sales and marketing expenses; bad debt expenses; and office administrative and related expenses, including rent expenses.

Costs incurred on behalf of managed and franchised properties.    Represents costs incurred on behalf of third-party owners and franchisees. These reimbursed costs relate primarily to payroll at managed properties where we are the employer, as well as system-wide services and the loyalty program operated on behalf of owners.

Other Items

Asset impairments

We hold significant amounts of goodwill, intangible assets, property and equipment, operating lease right-of-use ("ROU") assets, and investments. We evaluate these assets on a quarterly basis for impairment as further discussed in "—Critical Accounting Policies and Estimates." These evaluations have, in the past, resulted in impairment charges for certain of these assets based on the specific facts and circumstances surrounding those assets. We may be required to take additional impairment charges to reflect potential future declines in our asset and/or investment values.

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Acquisitions, divestitures, and significant renovations

From time to time, we may acquire businesses to support our long-term growth strategy. We also routinely acquire, divest, or undertake large-scale renovations of hotel properties. The results of operations derived from these properties do not, therefore, meet the definition of "comparable hotels" as defined in "—Key Business Metrics Evaluated by Management." The results of operations from these properties, however, may have a material effect on our results from period to period and are, therefore, addressed separately in our discussion on results of operations when material.

In 2021, we entered into the following key transactions:

•acquired ALG for $2.7 billion, net of cash acquired;

•acquired Alila Ventana Big Sur for $146 million and subsequently sold the property to an unrelated third party for approximately $148 million and entered into a long-term management agreement for the property upon sale;

•purchased the remaining 50% interest in the entities that owned Grand Hyatt São Paulo for $6 million of cash. Additionally, we repaid the $78 million third-party mortgage loan on the property, and we were released from our debt repayment guarantee;

•sold Hyatt Regency Lake Tahoe Resort, Spa and Casino for approximately $343 million and entered into a long-term management agreement for the property upon sale;

•sold Hyatt Regency Lost Pines Resort and Spa for approximately $268 million and entered into a long-term management agreement for the property upon sale; and

•contributed Hyatt Regency Miami assets to a newly-formed unconsolidated hospitality venture for an agreed-upon value of $22 million, resulting in the derecognition of the nonfinancial assets in the subsidiary.

In 2020, we entered into the following key transactions:

•sold the shares of the entities which own Hyatt Regency Baku for approximately $11 million, net of $4 million of cash disposed, closing costs, and proration adjustments, and entered into a long-term management agreement for the property upon sale;

•sold the shares of the entity which owns the Exhale spa and fitness business for a nominal amount; and

•sold a 58% ownership interest in certain of our subsidiaries that developed Hyatt Centric City Center Philadelphia and adjacent parking and retail space for $72 million and recorded our 42% ownership interest as an equity method investment.

See Part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 7 to our Consolidated Financial Statements" for further discussion on these key transactions.

Effect of foreign currency exchange rate fluctuations

A significant portion of our operations are conducted in functional currencies other than our reporting currency, which is the U.S. dollar. As a result, we are required to translate those results from the functional currency into U.S. dollars at market-based average exchange rates during the period reported. When comparing our results of operations between periods, there may be material portions of the changes in our revenues or expenses that are derived from fluctuations in exchange rates experienced between those periods. See Part I, Item 1A, "Risk Factors—Risks Related to the Hospitality Industry—The risks of doing business internationally, or in a particular country or region, could lower our revenues, increase our costs, reduce our profits, or disrupt our business."

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Results of Operations

Years Ended December 31, 2021 and December 31, 2020

Discussion on Consolidated Results 

For additional information regarding our consolidated results, refer to our consolidated statements of income (loss) included in Part IV, Item 15, "Exhibits and Financial Statement Schedule—Consolidated Financial Statements." Consolidated results were impacted significantly by the COVID-19 pandemic during the years ended December 31, 2021 and December 31, 2020. The year ended December 31, 2021 was also impacted by the ALG Acquisition which closed on November 1, 2021. See "—Segment Results" for further discussion.

The impact from our investments in marketable securities held to fund our deferred compensation plans through rabbi trusts was recognized on the various financial statement line items discussed below and had no impact on net income (loss).

Owned and leased hotels revenues.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","Better / (Worse)","","Currency Impact"],["Comparable owned and leased hotels revenues","$","688","","","$","391","","","$","297","","","75.9","%","","$","2"],["Non-comparable owned and leased hotels revenues","150","","","122","","","28","","","22.7","%","","\u2014"],["Total owned and leased hotels revenues","$","838","","","$","513","","","$","325","","","63.2","%","","$","2"]]
[[/GREPCENT_TABLE]]

Comparable owned and leased hotels revenues increased during the year ended December 31, 2021, compared to the year ended December 31, 2020, driven by increased demand from the ongoing recovery in 2021 and hotel re-openings following the suspension of operations at a number of hotels in 2020 due to the COVID-19 pandemic.

For the same periods, non-comparable owned and leased hotels revenues increased primarily due to transaction activity in 2021 and two properties undergoing renovations during 2020, partially offset by the extended closure of an owned hotel during 2021.

Management, franchise, and other fees revenues.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","Better / (Worse)"],["Base management fees","$","169","","","$","96","","","$","73","","","76.0","%"],["Incentive management fees","58","","","22","","","36","","","159.0","%"],["Franchise fees","119","","","63","","","56","","","89.3","%"],["Management and franchise fees","346","","","181","","","165","","","91.0","%"],["Other fees revenues","72","","","58","","","14","","","24.7","%"],["Management, franchise, and other fees","$","418","","","$","239","","","$","179","","","74.9","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","Better / (Worse)"],["Management, franchise, and other fees","$","418","","","$","239","","","$","179","","","74.9","%"],["Contra revenue","(35)","","","(30)","","","(5)","","","(16.7)","%"],["Net management, franchise, and other fees","$","383","","","$","209","","","$","174","","","83.3","%"]]
[[/GREPCENT_TABLE]]

The increase in management and franchise fees for the year ended December 31, 2021, compared to the same period in 2020, was due to increased demand driven by the ongoing recovery in 2021, compared to the decreased demand and suspended hotel operations at a number of hotels in 2020 as a result of the COVID-19 pandemic. Additionally, the current year includes the addition of managed and franchised contracts to the portfolio and $15 million of ALG management fees from the acquisition date through December 31, 2021.

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Other fees revenues increased for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily driven by increased license fees related to our co-branded credit cards and fees from marketing services provided by ALG, partially offset by a decrease in license fees in the ASPAC management and franchising segment.

See "—Segment Results" for further discussion.

Distribution and destination management revenues. Distribution and destination management revenues were $115 million for the year ended December 31, 2021, representing ALG Vacations revenues following the ALG Acquisition.

Other revenues.   Other revenues increased $51 million during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily driven by the impact of the COVID-19 pandemic on our residential management operations during the prior year and revenues related to the Unlimited Vacation Club membership program in the current year.

Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","Change"],["Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties","$","1,583","","","$","1,286","","","$","297","","","23.1","%"],["Less: rabbi trust impact","(19)","","","(28)","","","9","","","31.6","%"],["Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties excluding rabbi trust impact","$","1,564","","","$","1,258","","","$","306","","","24.4","%"]]
[[/GREPCENT_TABLE]]

Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties increased during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily driven by higher reimbursements for payroll and related costs and system-wide services provided to managed and franchised properties due to hotels resuming operations after prior year suspensions and improved hotel operating performance.

The increase during the year ended December 31, 2021, compared to the year ended December 31, 2020, included a $9 million decrease in the value of the marketable securities held to fund our deferred compensation plans through rabbi trusts due to a decline in market performance.

Owned and leased hotels expenses.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","Better / (Worse)"],["Comparable owned and leased hotels expenses","$","578","","","$","457","","","$","(121)","","","(26.4)","%"],["Non-comparable owned and leased hotels expenses","142","","","162","","","20","","","12.7","%"],["Rabbi trust impact","5","","","8","","","3","","","29.3","%"],["Total owned and leased hotels expenses","$","725","","","$","627","","","$","(98)","","","(15.7)","%"]]
[[/GREPCENT_TABLE]]

The increase in comparable owned and leased hotels expenses during the year ended December 31, 2021, compared to the year ended December 31, 2020, was primarily due to higher variable expenses driven by increased demand and hotels re-opening following the suspension of hotel operations at a number of hotels in 2020 due to the COVID-19 pandemic.

For the same periods, non-comparable owned and leased hotels expenses decreased primarily due to the extended closure of an owned hotel and disposition activity, partially offset by acquisition activity and two properties undergoing renovations during 2020.

Distribution and destination management expenses. Distribution and destination management expenses were $112 million for the year ended December 31, 2021, representing ALG Vacations expenses following the ALG Acquisition.

Depreciation and amortization expenses.    Depreciation and amortization expenses were flat during the year ended December 31, 2021, compared to the year ended December 31, 2020, as the $22 million increase in amortization expense of intangible assets acquired in the ALG Acquisition was primarily offset by dispositions of owned hotels.

Other direct costs.    Other direct costs increased $62 million during the year ended December 31, 2021, compared to the year ended December 31, 2020, driven by the impact of the COVID-19 pandemic on our residential management operations during the prior year, an increase related to our co-branded credit card program from higher cardholder spend and point transfers, and expenses related to the Unlimited Vacation Club membership program, partially offset by decreased expenses due to the sale of the Exhale spa and fitness business during the fourth quarter of 2020.

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Selling, general, and administrative expenses.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","Change"],["Selling, general, and administrative expenses","$","366","","","$","321","","","$","45","","","13.7","%"],["Less: rabbi trust impact","(38)","","","(52)","","","14","","","28.5","%"],["Less: stock-based compensation expense","(50)","","","(24)","","","(26)","","","(113.7)","%"],["Adjusted selling, general, and administrative expenses","$","278","","","$","245","","","$","33","","","13.1","%"]]
[[/GREPCENT_TABLE]]

Selling, general, and administrative expenses increased during the year ended December 31, 2021, compared to the same period in the prior year, driven by costs from the ALG businesses, inclusive of $8 million of integration-related costs, higher stock-based compensation expense in the current period following a reversal of previously recognized stock-based compensation expense during the year ended December 31, 2020 related to certain performance-vested restricted stock unit ("PSU") awards, and increases in certain payroll and related costs compared with significant cost containment initiatives during 2020. The aforementioned increases were partially offset by a decrease in bad debt expense and a decline in market performance of the underlying investments in marketable securities held to fund our deferred compensation plans through rabbi trusts.

See "—Key Business Metrics Evaluated by Management" for further discussion of Adjusted selling, general, and administrative expenses.

Costs incurred on behalf of managed and franchised properties.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","Change"],["Costs incurred on behalf of managed and franchised properties","$","1,639","","","$","1,375","","","$","264","","","19.2","%"],["Less: rabbi trust impact","(19)","","","(28)","","","9","","","31.6","%"],["Costs incurred on behalf of managed and franchised properties excluding rabbi trust impact","$","1,620","","","$","1,347","","","$","273","","","20.3","%"]]
[[/GREPCENT_TABLE]]

Costs incurred on behalf of managed and franchised properties increased during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily driven by increased payroll and related expenses at managed properties where we are the employer and expenses related to system-wide services provided to managed and franchised properties due to hotels resuming operations after prior year suspensions and improved hotel operating performance.

The increase during the year ended December 31, 2021, compared to the year ended December 31, 2020, included a $9 million decrease in the value of the marketable securities held to fund our deferred compensation plans through rabbi trusts due to a decline in market performance.

Net gains (losses) and interest income from marketable securities held to fund rabbi trusts.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","Better / (Worse)"],["Rabbi trust impact allocated to selling, general, and administrative expenses","$","38","","","$","52","","","$","(14)","","","(28.5)","%"],["Rabbi trust impact allocated to owned and leased hotels expenses","5","","","8","","","(3)","","","(29.3)","%"],["Net gains (losses) and interest income from marketable securities held to fund rabbi trusts","$","43","","","$","60","","","$","(17)","","","(28.6)","%"]]
[[/GREPCENT_TABLE]]

Net gains (losses) and interest income from marketable securities held to fund rabbi trusts decreased during the year ended December 31, 2021, compared to the year ended December 31, 2020, driven by the performance of the underlying invested assets.

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Equity earnings (losses) from unconsolidated hospitality ventures.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","Better / (Worse)"],["Net gains from sales activity related to unconsolidated hospitality ventures (Note 4)","$","100","","","$","\u2014","","","$","100"],["Hyatt's share of unconsolidated hospitality ventures foreign currency net gains (losses)","4","","","(20)","","","24"],["Hyatt's share of unconsolidated hospitality ventures net losses excluding foreign currency","(60)","","","(57)","","","(3)"],["Other","(16)","","","7","","","(23)"],["Equity earnings (losses) from unconsolidated hospitality ventures","$","28","","","$","(70)","","","$","98"]]
[[/GREPCENT_TABLE]]

The increase in equity earnings (losses) from unconsolidated hospitality ventures during the year ended December 31, 2021, compared to the year ended December 31, 2020, was primarily driven by $100 million of net gains from sales activity from our unconsolidated hospitality ventures, of which $69 million is attributable to the pre-tax gain recognized in connection with the acquisition of the remaining 50% interest in the entities that own Grand Hyatt São Paulo. Additionally, the increase in Hyatt's share of unconsolidated hospitality ventures foreign currency net gains during the year ended December 31, 2021, compared to net losses during the prior year, was primarily driven by Grand Hyatt São Paulo, which held loans denominated in a currency other than its functional currency. See Part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 7 to the Consolidated Financial Statements" for additional information. The increases were partially offset by debt repayment guarantees for hotel properties in India that we entered into during 2021. See Part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 15 to our Consolidated Financial Statements" for further detail.

Interest expense.    Interest expense increased $35 million during the year ended December 31, 2021, compared to the year ended December 31, 2020, driven by senior notes issuances in 2020 and 2021. See Part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 11 to the Consolidated Financial Statements" for additional information.

Gains (losses) on sales of real estate and other.   During the year ended December 31, 2021, we recognized the following:

•$305 million pre-tax gain related to the sale of Hyatt Regency Lake Tahoe Resort, Spa and Casino; and

•$104 million pre-tax gain related to the sale of Hyatt Regency Lost Pines Resort and Spa.

During the year ended December 31, 2020, we recognized the following:

•$30 million pre-tax loss related to the sale of our shares of the entities which own Hyatt Regency Baku;

•$11 million pre-tax loss related to the sale of our shares of the entity which owns the Exhale spa and fitness business;

•$3 million pre-tax loss related to the sale of land and construction in progress;

•$4 million pre-tax gain related to an unrelated third-party's investment in certain of our subsidiaries that developed Hyatt Centric Center City Philadelphia and adjacent parking and retail space; and

•$4 million pre-tax gain for the sale of a commercial building in Omaha, Nebraska.

See Part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 7 to the Consolidated Financial Statements" for additional information.

Asset impairments.   During the year ended December 31, 2021, we recognized $8 million of asset impairment charges related to intangible assets primarily as a result of contract terminations. During the year ended December 31, 2020, we recognized $38 million of goodwill impairment charges and $24 million of impairment charges related to property and equipment, operating lease ROU assets, and intangible assets.

See Part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 9 to the Consolidated Financial Statements" for additional information.

Other income (loss), net.    Other income (loss), net increased $73 million from a $92 million loss for the year ended December 31, 2020 to a $19 million loss for the year ended December 31, 2021. See Part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 21 to the Consolidated Financial Statements" for additional information.

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Benefit (provision) for income taxes.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","Better / (Worse)"],["Income (loss) before income taxes","$","44","","","$","(960)","","","$","1,004","","","104.6","%"],["Benefit (provision) for income taxes","(266)","","","257","","","(523)","","","(203.2)","%"],["Effective tax rate","603.5","%","","26.8","%","","","","(576.7)","%"]]
[[/GREPCENT_TABLE]]

The income tax provision and increase in the effective income tax rate for the year ended December 31, 2021, compared to the year ended December 31, 2020, is primarily due to a valuation allowance recorded on U.S. federal and state deferred tax assets. See Part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 14 to our Consolidated Financial Statements" for further detail.

Segment Results

As described in Part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 19 to our Consolidated Financial Statements," we evaluate segment operating performance using owned and leased hotels revenues; management, franchise, and other fees revenues; distribution and destination management revenues; and Adjusted EBITDA.

Our segment revenues, comparable RevPAR, and Adjusted EBITDA during the years ended December 31, 2021 and December 31, 2020 continue to be impacted by the COVID-19 pandemic and performance remains significantly below pre-COVID-19 pandemic results.

On November 1, 2021, we completed the ALG Acquisition, which is currently managed as a separate reportable segment.

Owned and leased hotels segment revenues.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","Better / (Worse)","","Currency Impact"],["Comparable owned and leased hotels revenues","$","705","","","$","403","","","$","302","","","74.7","%","","$","2"],["Non-comparable owned and leased hotels revenues","150","","","122","","","28","","","22.7","%","","\u2014"],["Total segment revenues","$","855","","","$","525","","","$","330","","","62.6","%","","$","2"]]
[[/GREPCENT_TABLE]]

Comparable owned and leased hotels revenues increased for the year ended December 31, 2021, compared to the same period in the prior year, driven by increased demand during 2021 due to continued recovery from the COVID-19 pandemic and hotel re-openings.

For the same periods, non-comparable owned and leased hotels revenues increased primarily due to transaction activity in 2021 and two properties undergoing renovations during 2020, partially offset by the extended closure of an owned hotel during 2021.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","RevPAR","","Occupancy","","ADR"],["","2021","","vs. 2020 (in constant $)","","2021","","vs. 2020","","2021","","vs. 2020 (in constant $)"],["Comparable owned and leased hotels","$","96","","","94.9","%","","44.5","%","","21.4% pts","","$","215","","","1.3","%"]]
[[/GREPCENT_TABLE]]

The increase in RevPAR at our comparable owned and leased hotels during the year ended December 31, 2021, compared to the same period in 2020, was primarily driven by improved leisure transient demand across various markets in the United States due to continued recovery from the COVID-19 pandemic.

During the year ended December 31, 2021, we removed six properties from the comparable owned and leased hotels results as three were sold, one was contributed to an unconsolidated hospitality venture, one was closed for an extended period, and one converted from leased to managed.

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Owned and leased hotels segment Adjusted EBITDA.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","Better / (Worse)"],["Owned and leased hotels Adjusted EBITDA","$","77","","","$","(135)","","","$","212","","","156.9","%"],["Pro rata share of unconsolidated hospitality ventures Adjusted EBITDA","14","","","(13)","","","27","","","204.1","%"],["Segment Adjusted EBITDA","$","91","","","$","(148)","","","$","239","","","161.2","%"]]
[[/GREPCENT_TABLE]]

Adjusted EBITDA at our comparable owned and leased hotels increased $166 million during the year ended December 31, 2021, compared to the same period in 2020, primarily driven by the $302 million increase in comparable owned and leased hotels revenues, partially offset by an increase in comparable owned and leased hotels expenses driven by variable expenses incurred due to higher demand and hotels re-opening in 2021. Adjusted EBITDA at our non-comparable owned and leased hotels increased $46 million during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to transaction activity and improved results driven by reduced expenses at an owned hotel that was closed for an extended period.

Our pro rata share of Adjusted EBITDA from our unconsolidated hospitality ventures increased during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily driven by increased demand during 2021 due to continued recovery from the COVID-19 pandemic.

Americas management and franchising segment revenues.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","Better / (Worse)"],["Segment revenues"],["Management, franchise, and other fees","$","277","","","$","152","","","$","125","","","83.0","%"],["Contra revenue","(19)","","","(18)","","","(1)","","","(13.6)","%"],["Other revenues","84","","","42","","","42","","","99.7","%"],["Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties","1,410","","","1,152","","","258","","","22.4","%"],["Total segment revenues","$","1,752","","","$","1,328","","","$","424","","","31.9","%"]]
[[/GREPCENT_TABLE]]

The increase in management, franchise, and other fees during the year ended December 31, 2021, compared to the year ended December 31, 2020, was primarily driven by an increase in management fees from improved demand during 2021 due to continued recovery from the COVID-19 pandemic, which was led by certain markets in the United States, particularly resort destinations, and increases in franchise fees from select service properties.

The increase in other revenues during the year ended December 31, 2021, compared to the same period in the prior year, was driven by increased demand in our residential management business during 2021 due to continued recovery from the COVID-19 pandemic.

The increase in revenues for the reimbursement of costs incurred on behalf of managed and franchised properties for the year ended December 31, 2021, compared to the same period in 2020, was primarily driven by higher reimbursements for payroll and related costs and system-wide services provided to managed and franchised properties due to hotels resuming operations after prior year suspensions and improved hotel operating performance.

[[GREPCENT_TABLE]]
[["(Comparable System-wide Hotels)","Year Ended December 31,"],["RevPAR","","Occupancy","","ADR"],["2021","","vs. 2020 (in constant $)","","2021","","vs. 2020","","2021","","vs. 2020 (in constant $)"],["Americas full service","$","89","","","96.4","%","","44.1","%","","19.9% pts","","$","202","","","7.9","%"],["Americas select service","$","76","","","66.3","%","","61.8","%","","20.7% pts","","$","123","","","10.6","%"]]
[[/GREPCENT_TABLE]]

The RevPAR increases at our comparable system-wide full service and select service hotels during the year ended December 31, 2021, compared to the year ended December 31, 2020, were primarily driven by leisure transient demand due to continued recovery from the COVID-19 pandemic.

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During the year ended December 31, 2021, seven properties were removed from the comparable Americas full service system-wide hotel results as four left the hotel portfolio, two have been closed for an extended period, and one is undergoing a renovation. During the year ended December 31, 2021, ten properties were removed from the comparable Americas select service system-wide hotel results as two have been closed for an extended period and eight left the hotel portfolio.

Americas management and franchising segment Adjusted EBITDA.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","Better / (Worse)"],["Segment Adjusted EBITDA","$","231","","","$","90","","","$","141","","","156.8","%"]]
[[/GREPCENT_TABLE]]

Adjusted EBITDA increased during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily driven by the increases in management and franchise fees. Additionally, Adjusted EBITDA increased due to decreased selling, general, and administrative expenses, primarily resulting from bad debt reserves recorded on certain receivables in the prior year, partially offset by an increase in payroll and related costs as a result of cost containment initiatives in 2020.

ASPAC management and franchising segment revenues.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","Better / (Worse)"],["Segment revenues"],["Management, franchise, and other fees","$","72","","","$","61","","","$","11","","","17.2","%"],["Contra revenue","(4)","","","(2)","","","(2)","","","(45.0)","%"],["Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties","96","","","75","","","21","","","27.2","%"],["Total segment revenues","$","164","","","$","134","","","$","30","","","22.4","%"]]
[[/GREPCENT_TABLE]]

Management, franchise, and other fees increased for the year ended December 31, 2021, compared to the same period in the prior year, primarily driven by an increase in management fees in Greater China due to improved domestic demand, partially offset by a decrease in license fees from the sale of branded residential units.

The increase in revenues for the reimbursement of costs incurred on behalf of managed and franchised properties during the year ended December 31, 2021, compared to the year ended December 31, 2020, was driven by higher reimbursements for system-wide services provided to managed and franchised properties due to improved hotel operating performance.

[[GREPCENT_TABLE]]
[["(Comparable System-wide Hotels)","Year Ended December 31,"],["RevPAR","","Occupancy","","ADR"],["2021","","vs. 2020 (in constant $)","","2021","","vs. 2020","","2021","","vs. 2020 (in constant $)"],["ASPAC full service","$","68","","","15.0","%","","42.9","%","","6.1% pts","","$","158","","","(1.3)","%"],["ASPAC select service","$","38","","","23.9","%","","53.0","%","","9.2% pts","","$","71","","","2.4","%"]]
[[/GREPCENT_TABLE]]

Comparable system-wide hotels RevPAR increased for year ended December 31, 2021, compared to the same period in the prior year, driven by increased transient demand led by Greater China during 2021 due to continued recovery from the COVID-19 pandemic.

During the year ended December 31, 2021, three properties were removed from the comparable ASPAC full service system-wide hotel results as one is undergoing a renovation, one has been closed for an extended period, and one left the hotel portfolio. During the year ended December 31, 2021, one property left the hotel portfolio and was removed from the comparable ASPAC select service system-wide hotel results.

ASPAC management and franchising segment Adjusted EBITDA.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","Better / (Worse)"],["Segment Adjusted EBITDA","$","29","","","$","24","","","$","5","","","20.6","%"]]
[[/GREPCENT_TABLE]]

The increase in Adjusted EBITDA was primarily driven by the increase in management, franchise, and other fees revenues during the year ended December 31, 2021, compared to the same period in the prior year, partially offset by an

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increase in selling, general, and administrative expenses, primarily due to higher payroll and related costs as a result of cost containment initiatives in 2020.

EAME/SW Asia management and franchising segment revenues.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","Better / (Worse)"],["Segment revenues"],["Management, franchise, and other fees","$","43","","","$","23","","","$","20","","","85.0","%"],["Contra revenue","(12)","","","(10)","","","(2)","","","(16.0)","%"],["Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties","66","","","55","","","11","","","21.5","%"],["Total segment revenues","$","97","","","$","68","","","$","29","","","44.1","%"]]
[[/GREPCENT_TABLE]]

The increase in management, franchise, and other fees during the year ended December 31, 2021, compared to the year ended December 31, 2020, was driven by an increase in management fees across the region during 2021 due to continued recovery from the COVID-19 pandemic, with notable increases in Europe and the Middle East led by transient demand.

The increase in revenues for the reimbursement of costs incurred on behalf of managed and franchised properties during year ended December 31, 2021, compared to the year ended December 31, 2020, was primarily driven by higher reimbursements for system-wide services provided to managed and franchised properties due to improved hotel operating performance.

[[GREPCENT_TABLE]]
[["(Comparable System-wide Hotels)","Year Ended December 31,"],["RevPAR","","Occupancy","","ADR"],["2021","","vs. 2020 (in constant $)","","2021","","vs. 2020","","2021","","vs. 2020 (in constant $)"],["EAME/SW Asia full service","$","69","","","72.2","%","","40.8","%","","16.0% pts","","$","170","","","4.8","%"],["EAME/SW Asia select service","$","40","","","43.3","%","","52.8","%","","16.8% pts","","$","76","","","(2.4)","%"]]
[[/GREPCENT_TABLE]]

Comparable system-wide hotels RevPAR increased during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily driven by increased demand as various travel and movement restrictions were lifted during 2021 due to continued recovery from the COVID-19 pandemic. The RevPAR increases were primarily driven by leisure destinations in Europe, which benefited from a strong summer, and the Middle East, which has experienced steady recovery as restrictions on international travel have eased.

During the year ended December 31, 2021, four properties were removed from the comparable EAME/SW Asia full service system-wide hotel results as three were closed for an extended period and one was undergoing a renovation. During the year ended December 31, 2021, one property left the hotel portfolio and was removed from the comparable EAME/SW Asia select service system-wide hotel results.

EAME/SW Asia management and franchising segment Adjusted EBITDA.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","Better / (Worse)"],["Segment Adjusted EBITDA","$","17","","","$","(15)","","","$","32","","","211.0","%"]]
[[/GREPCENT_TABLE]]

The increase in Adjusted EBITDA during the year ended December 31, 2021, compared to the year ended December 31, 2020, was primarily driven by the increase in management, franchise, and other fees coupled with reduced selling, general, and administrative expenses due to bad debt reserves recorded on certain receivables in the prior year.

Apple Leisure Group segment revenues.

We acquired ALG on November 1, 2021, and as a result, our 2021 results include two months of ALG operations. During the period, revenues totaled $166 million, primarily driven by $115 million of distribution and destination management revenues and $21 million of management, franchise, and other fees revenues. Management, franchise, and other fees revenues reflect $188 and $92 of Net Package RevPAR for AMR Collection resorts in Americas, including Latin America and the Caribbean, and Europe, respectively.

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Apple Leisure Group segment Adjusted EBITDA.

For the two months ended December 31, 2021, Adjusted EBITDA was $4 million. During the same period, the sale of new Unlimited Vacation Club membership contracts increased contract liabilities and deferred cost assets by $35 million and $16 million, respectively, resulting in $19 million of Net Deferrals. The increases in contract liabilities and deferred cost assets will increase the revenues and expenses, respectively, that will be recognized in our consolidated statements of income (loss) over the customer life of a membership club member, which ranges from 3 to 25 years. Additionally, during the two-month period, Net Financed Contracts increased $8 million.

Corporate and other.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["2021","","2020","","Better / (Worse)"],["Revenues","$","41","","","$","34","","","$","7","","","19.7","%"],["Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties","$","\u2014","","","$","4","","","$","(4)","","","(100.0)","%"],["Adjusted EBITDA","$","(116)","","","$","(130)","","","$","14","","","11.2","%"]]
[[/GREPCENT_TABLE]]

Revenues increased during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily driven by license fees related to our co-branded credit cards, partially offset by the sale of the Exhale spa and fitness business during the fourth quarter of 2020.

Adjusted EBITDA increased during the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily driven by $45 million of costs incurred on behalf of managed and franchised properties in 2020 that we do not intend to recover from hotel owners. The costs were associated with providing necessary system-wide services and programs, and we continued to provide these services despite the reduction in revenues for the reimbursement of these costs during the prior year due to declines in hotel operations as a result of the COVID-19 pandemic. The aforementioned increase to Adjusted EBITDA during the year ended December 31, 2021, compared to the year ended December 31, 2020, was partially offset by increases in certain selling, general, administrative expenses, including payroll and related costs, due to cost containment initiatives in 2020 and $8 million of integration-related costs associated with the ALG Acquisition.

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Non-GAAP Measure Reconciliation

The table below provides a reconciliation of our net income (loss) attributable to Hyatt Hotels Corporation to EBITDA and a reconciliation of EBITDA to consolidated Adjusted EBITDA:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["2021","","2020","","Change"],["Net income (loss) attributable to Hyatt Hotels Corporation","$","(222)","","","$","(703)","","","$","481","","","68.4","%"],["Interest expense","163","","","128","","","35","","","26.9","%"],["(Benefit) provision for income taxes","266","","","(257)","","","523","","","203.2","%"],["Depreciation and amortization","310","","","310","","","\u2014","","","0.1","%"],["EBITDA","517","","","(522)","","","1,039","","","199.1","%"],["Contra revenue","35","","","30","","","5","","","16.7","%"],["Revenues for the reimbursement of costs incurred on behalf of managed and franchised properties","(1,583)","","","(1,286)","","","(297)","","","(23.1)","%"],["Costs incurred on behalf of managed and franchised properties","1,639","","","1,375","","","264","","","19.2","%"],["Costs incurred on behalf of managed and franchised properties that we do not intend to recover from hotel owners","\u2014","","","(45)","","","45","","","100.0","%"],["Equity (earnings) losses from unconsolidated hospitality ventures","(28)","","","70","","","(98)","","","(139.4)","%"],["Stock-based compensation expense","50","","","24","","","26","","","113.7","%"],["(Gains) losses on sales of real estate and other","(414)","","","36","","","(450)","","","NM"],["Asset impairments","8","","","62","","","(54)","","","(87.3)","%"],["Other (income) loss, net","19","","","92","","","(73)","","","(79.2)","%"],["Pro rata share of unconsolidated owned and leased hospitality ventures Adjusted EBITDA","14","","","(13)","","","27","","","204.1","%"],["Adjusted EBITDA","$","257","","","$","(177)","","","$","434","","","245.3","%"]]
[[/GREPCENT_TABLE]]

Liquidity and Capital Resources

Overview

We finance our business primarily with existing cash, short-term investments, and cash generated from our operations. As part of our long-term business strategy, we use net proceeds from dispositions to support new investment opportunities, including acquisitions, as well as return capital to our shareholders when appropriate. If we deem it necessary, we borrow cash under our revolving credit facility or from other third-party sources and raise funds by issuing debt or equity securities. We maintain a cash investment policy that emphasizes the preservation of capital.

The COVID-19 pandemic and related travel restrictions and other containment efforts have had a significant impact on the travel and lodging and hospitality industries and, as a result, on our business, results of operations, cash flows, and financial condition. We have been, and will continue to be, disciplined with respect to managing operating expenses and cash flows consistent with business needs and demand levels.

In alignment with our long-term business strategy, on November 1, 2021, we completed the ALG Acquisition and paid $2.7 billion of cash. The transaction was funded with a combination of cash on hand, $1 billion of proceeds from new debt, $575 million of proceeds from the common stock issuance, and $210 million of borrowings on the revolving credit facility. We repaid the $210 million of borrowings on the revolving credit facility during the year ended December 31, 2021. See part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 7 and Note 16 to our Consolidated Financial Statements" for additional information.

We may, from time to time, seek to retire or purchase our outstanding equity and/or debt securities through cash purchases and/or exchanges for other securities, in open market purchases, privately negotiated transactions, or otherwise, including pursuant to a Rule 10b5-1 plan or an accelerated share repurchase transaction. Such repurchases or exchanges, if any, will depend on prevailing market conditions, restrictions in our existing or future financing arrangements, our liquidity requirements, contractual restrictions, and other factors. The amounts involved may be material.

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We believe that our cash position, short-term investments, and cash from operations, together with borrowing capacity under our revolving credit facility and our access to the capital markets, will be adequate to meet all of our funding requirements and capital deployment objectives in both the short term and long term.

Recent Transactions Affecting Our Liquidity and Capital Resources

During the years ended December 31, 2021 and December 31, 2020, various transactions impacted our liquidity. See "—Sources and Uses of Cash."

Sources and Uses of Cash

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020"],["Cash provided by (used in):"],["Operating activities","$","315","","","$","(611)"],["Investing activities","(1,772)","","","(736)"],["Financing activities","1,288","","","1,525"],["Effect of exchange rate changes on cash","(3)","","","(4)"],["Net increase (decrease) in cash, cash equivalents, and restricted cash","$","(172)","","","$","174"]]
[[/GREPCENT_TABLE]]

Cash Flows from Operating Activities

Cash provided by (used in) operating activities increased $926 million in the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily due to improved performance across the portfolio driven by continued recovery from the COVID-19 pandemic, which contributed to increased working capital. Cash provided by operating activities in 2021 also includes increased working capital driven by ALG's performance. Additionally, during 2021, we received a $254 million refund from the IRS for a loss carryback claim allowed under the provision of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act.

Cash Flows from Investing Activities

2021 Activity:

•We acquired ALG for $2,679 million of cash, net of $460 million of cash and cash equivalents and $16 million of restricted cash acquired.

•We acquired Alila Ventana Big Sur for $146 million of cash, net of closing costs and proration adjustments, and received $148 million of proceeds, net of closing costs and proration adjustments from the subsequent sale.

•We invested $111 million in capital expenditures (see "—Capital Expenditures").

•We purchased our partner's interest in the entities that own Grand Hyatt São Paulo for $6 million of cash, and we repaid the $78 million third-party mortgage loan on the property.

•We invested $29 million in unconsolidated hospitality ventures.

•We issued $21 million of financing receivables.

•We acquired land from an unrelated third party for $7 million of cash.

•We received $447 million of net proceeds from the sale of marketable securities and short-term investments.

•We received $343 million of proceeds, net of closing costs and proration adjustments, from the sale of Hyatt Regency Lake Tahoe Resort, Spa and Casino.

•We received $268 million of proceeds, net of closing costs and proration adjustments, from the sale of Hyatt Regency Lost Pines Resort and Spa.

•We received $98 million of proceeds from the sales activity related to certain equity method investments and the redemption of held-to-maturity ("HTM") debt securities.

•We received $3 million of proceeds, net of cash disposed, closing costs, and proration adjustments, from the sale of our interest in the consolidated hospitality venture that owns Hyatt Regency Bishkek.

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2020 Activity:

•We invested $601 million in net purchases of marketable securities and short-term investments.

•We invested $122 million in capital expenditures (see "—Capital Expenditures").

•We invested $65 million in unconsolidated hospitality ventures.

•We issued $32 million of financing receivables.

•We received $72 million of proceeds related to the disposition of 58% ownership interest in certain subsidiaries that developed Hyatt Centric Center City Philadelphia and adjacent parking and retail space.

•We sold the shares of the entities which own Hyatt Regency Baku for approximately $11 million, net of $4 million of cash disposed, closing costs, and proration adjustments.

•We received $6 million of proceeds, net of closing costs and proration adjustments, from the sale of a commercial building in Omaha, Nebraska.

Periodically, we enter into like-kind exchange agreements upon the disposition or acquisition of certain properties. Pursuant to the terms of these agreements, the proceeds from the sales are placed into an escrow account administered by a qualified intermediary and are unavailable for our use until released. The proceeds are recorded as restricted cash on our consolidated balance sheets and released (i) if they are utilized as part of a like-kind exchange agreement, (ii) if we do not identify a suitable replacement property within 45 days after the agreement date, or (iii) when a like-kind exchange agreement is not completed within the remaining allowable time period.

Cash Flows from Financing Activities

2021 Activity:

•We issued senior notes for approximately $1,738 million of net proceeds, after deducting $11 million of underwriting discounts and other offering expenses.

•We issued and sold 8,050,000 shares of Class A common stock and received $575 million of net proceeds, after deducting approximately $25 million of underwriting discounts and other offering expenses (the "common stock issuance").

•We redeemed our outstanding $750 million of three-month LIBOR plus 3.000% senior notes due 2022, for approximately $753 million, inclusive of $3 million of accrued interest.

•We repaid our outstanding $250 million of 5.375% senior notes due 2021 at an issue price of 99.846%, at maturity for approximately $257 million, inclusive of $7 million of accrued interest.

•We borrowed and repaid $210 million on our revolving credit facility.

2020 Activity:

•We issued senior notes for approximately $1,635 million of net proceeds, after deducting $15 million of underwriting discounts and other offering expenses.

•We repurchased 827,643 shares of Class A common stock for an aggregate purchase price of $69 million.

•We paid a first quarter $0.20 per share cash dividend on Class A and Class B common stock totaling $20 million.

•We borrowed and repaid $400 million on our revolving credit facility.

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We define net debt as total debt less the total of cash and cash equivalents and short-term investments. We consider net debt and its components to be an important indicator of liquidity and a guiding measure of capital structure strategy. Net debt is a non-GAAP measure and may not be computed the same as similarly titled measures used by other companies. The following table provides a summary of our debt to capital ratios:

[[GREPCENT_TABLE]]
[["","December 31, 2021","","","December 31, 2020"],["Consolidated debt (1)","$","3,978","","","","$","3,244"],["Stockholders' equity","3,563","","","","3,211"],["Total capital","7,541","","","","6,455"],["Total debt to total capital","52.8","%","","","50.3","%"],["Consolidated debt (1)","3,978","","","","3,244"],["Less: Cash and cash equivalents and short-term investments","(1,187)","","","","(1,882)"],["Net consolidated debt","$","2,791","","","","$","1,362"],["Net debt to total capital","37.0","%","","","21.1","%"]]
[[/GREPCENT_TABLE]]

(1) Excludes approximately $581 million and $671 million of our share of indebtedness of our unconsolidated hospitality ventures accounted for under the equity method at December 31, 2021 and December 31, 2020, respectively, substantially all of which is non-recourse to us and a portion of which we guarantee pursuant to separate agreements.

Capital Expenditures

We routinely make capital expenditures to enhance our business. We classify our capital expenditures into maintenance and technology, enhancements to existing properties, and investment in new properties under development or recently opened. We have been, and will continue to be, disciplined with respect to our capital spending, taking into account our cash flow from operations.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020"],["Enhancements to existing properties","$","68","","","$","60"],["Maintenance and technology","43","","","26"],["Investment in new properties under development or recently opened","\u2014","","","36"],["Total capital expenditures","$","111","","","$","122"]]
[[/GREPCENT_TABLE]]

The decrease in investment in new properties under development or recently opened is primarily driven by the completion of the renovation at a Miraval property.

Senior Notes

The table below sets forth the outstanding principal balance of our various series of senior unsecured notes (collectively, the "Senior Notes") at December 31, 2021, as described in Part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 11 to our Consolidated Financial Statements." Interest on the Senior Notes is payable semi-annually or quarterly.

[[GREPCENT_TABLE]]
[["","","Principal amount"],["$300 million senior unsecured notes maturing in 2023\u2014floating rate notes","","$","300"],["$350 million senior unsecured notes maturing in 2023\u20143.375%","","350"],["$700 million senior unsecured notes maturing in 2023\u20141.300%","","700"],["$750 million senior unsecured notes maturing in 2024\u20141.800%","","750"],["$450 million senior unsecured notes maturing in 2025\u20145.375%","","450"],["$400 million senior unsecured notes maturing in 2026\u20144.850%","","400"],["$400 million senior unsecured notes maturing in 2028\u20144.375%","","400"],["$450 million senior unsecured notes maturing in 2030\u20145.750%","","450"],["Total Senior Notes","","$","3,800"]]
[[/GREPCENT_TABLE]]

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In the indenture that governs the Senior Notes, we agreed not to:

•create any liens on our principal properties, or on the capital stock or debt of our subsidiaries that own or lease principal properties, to secure debt without also effectively providing that the Senior Notes are secured equally and ratably with such debt for so long as such debt is so secured; or

•enter into any sale and leaseback transactions with respect to our principal properties.

These limitations are subject to significant exceptions.

The indenture also limits our ability to enter into mergers or consolidations or transfer all or substantially all of our assets unless certain conditions are satisfied.

If a change of control triggering event occurs, as defined in the indenture governing the Senior Notes, we will be required to offer to purchase the Senior Notes at a price equal to 101% of their principal amount, together with accrued and unpaid interest, if any, to the date of purchase. With the exception of the 2023 Floating Rate Notes, 2023 Fixed Rate Notes, and 2024 Fixed Rate Notes, as defined below, we may also redeem some or all of the remaining Senior Notes at any time prior to their maturity at a redemption price equal to 100% of the principal amount of the Senior Notes redeemed plus accrued and unpaid interest, if any, to the date of redemption plus a make-whole amount. The amount of any make-whole payment depends, in part, on the yield of U.S. Treasury securities with a comparable maturity to the respective Senior Notes at the date of redemption. The 2023 Floating Rate Notes are not redeemable at our option at any time before the first anniversary of the issue date of the notes. We may redeem some or all of the 2023 Fixed Rate Notes and 2024 Fixed Rate Notes at any time before the first anniversary of the issue date at a redemption price equal to 100% of the principal amount of the Senior Notes redeemed plus accrued and unpaid interest, if any, to the date of redemption plus a make-whole amount. At any time on or after the first anniversary of the issue date of the 2023 Floating Rate Notes, 2023 Fixed Rate Notes, and 2024 Fixed Rate Notes, we may redeem some or all of such notes at a price equal to 100% of the principal amount of the notes redeemed plus accrued and unpaid interest.

We are in compliance with all applicable covenants under the indenture governing our Senior Notes at December 31, 2021.

On October 1, 2021, we issued the $700 million of 1.300% senior notes due 2023 (the "2023 Fixed Rate Notes"), $300 million of floating rate senior notes due 2023 (the "2023 Floating Rate Notes"), and $750 million of 1.800% senior notes due 2024 (the "2024 Fixed Rate Notes"). See Part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 11 to our Consolidated Financial Statements".

Revolving Credit Facility

On March 18, 2021, we entered into the Third Revolver Amendment. See Part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 11 to our Consolidated Financial Statements" and our Current Report on Form 8-K filed with the SEC on March 22, 2021, which is incorporated in this annual report by reference, for more information related to the Third Revolver Amendment.

On August 30, 2021, we entered into the Fourth Revolver Amendment, which became effective substantially concurrently with the ALG Acquisition on November 1, 2021. See Part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 11 to our Consolidated Financial Statements" and our Current Report on Form 8-K filed with the SEC on August 31, 2021, which is incorporated in this annual report by reference, for more information related to the Fourth Revolver Amendment.

Our revolving credit facility, as amended through the Fourth Revolver Amendment, the "Revolving Credit Facility," is intended to provide financing for working capital and general corporate purposes, including commercial paper backup and permitted investments and acquisitions. At December 31, 2021 and December 31, 2020, we had no loan balance outstanding under the Revolving Credit Facility. We had $7 million and $1 million outstanding undrawn letters of credit issued under our Revolving Credit Facility, and reduced availability thereunder, at December 31, 2021 and December 31, 2020. At December 31, 2021, we had $1,493 million of available borrowing capacity under our Revolving Credit Facility, net of outstanding undrawn letters of credit. See Part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 11 to our Consolidated Financial Statements."

All of our borrowings under our Revolving Credit Facility are guaranteed by substantially all of our material domestic subsidiaries, as defined in the Revolving Credit Facility. All guarantees are guarantees of payment and performance and not of collection. Hotel Investors I, Inc., a wholly owned subsidiary, is an additional borrower under our Revolving Credit Facility.

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Interest rates on outstanding borrowings are either LIBOR-based or based on an alternate base rate, with margins in each case based on our credit rating or, in certain circumstances, our credit rating and leverage ratio. Interest rates under our Revolving Credit Facility are subject to a LIBOR floor of 0.250%.

During the Covenant Waiver Period, as defined below, and after the Covenant Waiver Period until April 1, 2023 (the "Covenant Adjustment Period"), as long as we have a credit rating of at least BBB- from S&P or a credit rating of at least Baa3 from Moody's, (a) borrowings under our Revolving Credit Facility bear interest, at our option, at either one, three, or six month LIBOR, subject to the LIBOR floor, plus a margin of 1.550% per annum, plus any mandatory costs, if applicable, or the alternative base rate plus a margin of 0.550% per annum and (b) the Revolving Credit Facility provides for a facility fee of 0.200% of the total commitments of the lenders under the Revolving Credit Facility. The facility fee is charged regardless of the level of borrowings. In the event we no longer have a credit rating of BBB- or better from S&P or a credit rating of Baa3 or better from Moody's, (a) borrowings under our Revolving Credit Facility will bear interest at LIBOR, subject to the LIBOR floor, plus 2.000% per annum or the alternative base rate plus 1.000% per annum and (b) the facility fee will be 0.250%.

At December 31, 2021, the interest rate for a one month LIBOR borrowing under our Revolving Credit Facility would have been 1.800%, or LIBOR of 0.101% (but subject to a LIBOR floor of 0.250%) plus the margin. Borrowings under our swingline subfacility will bear interest at a per annum rate equal to the alternate base rate plus the applicable percentage for revolving loans that are alternate base rate loans.

After the Covenant Adjustment Period, borrowings under our Revolving Credit Facility and the applicable facility fee will be set at lower rates that vary based on our credit rating or, in certain circumstances, our credit rating and leverage ratio.

We are also required to pay letter of credit fees with respect to each letter of credit equal to the applicable margin for LIBOR on the face amount of each letter of credit. In addition, we must pay a fronting fee to the issuer of each letter of credit of 0.10% per annum on the face amount of such letter of credit.

Our Revolving Credit Facility contains a number of affirmative and restrictive covenants including limitations on the ability to place liens on our direct or indirect subsidiaries' assets; to merge, consolidate, and dissolve; to sell assets; to engage in transactions with affiliates; to change our or our direct or indirect subsidiaries' fiscal year or organizational documents; to make restricted payments; and, during the Covenant Waiver Period, to make investments.

The Revolving Credit Facility also contains financial covenants that limit (a) our maximum leverage, consisting of the ratio of Consolidated Adjusted Funded Debt to Consolidated EBITDA, each as defined in the Revolving Credit Facility, to not more than 4.5 to 1, except that the maximum leverage ratio covenant was not required to be measured during the period from April 21, 2020 through January 1, 2022 (the "Covenant Waiver Period"), the maximum leverage ratio covenant is not required to be tested for the first quarter of 2022, and the maximum leverage ratio covenant is subject to increased levels, beginning at 7.5 to 1 and stepping down to 5.0 to 1, from the second quarter of 2022 through the first quarter of 2023, (b) our fixed charge coverage ratio, consisting of the ratio of Consolidated EBITDA to Consolidated Fixed Charges, each defined in the Revolving Credit Facility, to not less than 1.25 to 1 solely during the first quarter of 2022, and (c) our Secured Funded Debt Ratio, consisting of the ratio of Secured Funded Debt to Property and Equipment, each as defined in the Revolving Credit Facility, to not more than 0.30 to 1. When applicable, these financial covenants are measured quarterly. Our Revolving Credit Facility also includes a requirement to maintain Liquidity as defined in the Revolving Credit Facility of at least $450 million during the Covenant Waiver Period. Our outstanding Senior Notes do not contain a corresponding financial covenant or a requirement that we maintain certain financial ratios.

Letters of Credit

We issue letters of credit either under the Revolving Credit Facility as discussed above or directly with financial institutions. We had $276 million and $234 million in letters of credit issued directly with financial institutions outstanding at December 31, 2021 and December 31, 2020, respectively. At December 31, 2021, these letters of credit had weighted-average fees of approximately 159 basis points and typically have maturity dates of up to one year. See Part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 15 to our Consolidated Financial Statements."

Surety and Other Bonds

Surety and other bonds issued on our behalf were $47 million at December 31, 2021 and are generally off-balance sheet arrangements. These primarily relate to workers' compensation, taxes, licenses, construction liens, and utilities related to our lodging operations. See Part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 15 to our Consolidated Financial Statements."

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Other Indebtedness and Future Debt Maturities

Excluding the $3,800 million of Senior Notes, all other third-party indebtedness was $178 million, net of $29 million of unamortized discounts and deferred financing fees, at December 31, 2021.

At December 31, 2021, $10 million of our outstanding debt will mature in the following 12 months. We believe we will have adequate liquidity, including our capacity to borrow under our revolving credit facility, and/or proceeds from recent issuances of debt to repay our current debt obligations.

Contractual Obligations

We continue to review and evaluate the management agreements acquired in the ALG Acquisition and the contractual obligations therein. Any identified contractual obligations could be material and may increase our liabilities assumed in the ALG Acquisition (see Note 7).

Our significant contractual obligations at December 31, 2021 include debt, finance and operating lease obligations, purchase obligations, and other commitments primarily related to deferred compensation plan liabilities.

Our short-term and long-term obligations related to debt are discussed in Part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 11 to our Consolidated Financial Statements" and our short-term and long-term obligations related to finance and operating leases are discussed in Part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 8 to our Consolidated Financial Statements."

Purchase obligations at December 31, 2021 were $69 million, which are due in the short term and primarily consist of construction and renovation commitments at certain owned and leased properties.

Other commitments primarily consist of deferred compensation plan liabilities, with $571 million due in the long term. This excludes $281 million in long-term taxes payable due to the uncertainty related to the timing of the reversal of those liabilities.

We enter into contracts with certain airlines for commercial air transportation provided by third-party air carriers and chartered air transportation provided by ALG Vacations. Obligations under these contracts are due in the short term and may be renegotiated based on customer demand.

Guarantee Commitments

We enter into performance guarantees with third-party owners related to certain hotels we manage which require us to guarantee payments to the owners if specified levels of operating profit are not achieved by their hotels. Under these performance guarantees, we may be required to fund up to $30 million within the next twelve months and up to $69 million thereafter.

We also enter into debt repayment guarantees with respect to certain unconsolidated hospitality ventures and certain managed hotels. Our debt repayment guarantee commitments include $42 million that expire within the next twelve months and $320 million that expire thereafter. Certain of these underlying debt agreements have extension periods which are not reflected in the aforementioned figures. With respect to certain of these guarantees, we have reimbursement agreements with our unconsolidated hospitality venture partners or the respective hotel owners which reduce our maximum guarantee and are not reflected above.

See Part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 15 to our Consolidated Financial Statements."

Investment Commitments

Our investment commitments represent our commitment, under certain conditions, to lend or provide certain consideration to, or invest in, various business ventures. At December 31, 2021, we expect to fund commitments of $172 million within the next twelve months and $181 million thereafter. See Part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 15 to our Consolidated Financial Statements."

Critical Accounting Policies and Estimates

Preparing financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, the reported amounts of revenues and expenses during the reporting periods, and the related disclosures in our consolidated financial statements and accompanying notes.

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A number of our accounting policies, which are described in Part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 2 to our Consolidated Financial Statements," are critical due to the fact they involve a higher degree of judgment and estimates. Those accounting policies and other critical estimates are included below. As a result, these accounting policies could materially affect our financial position and results of operations. While we have used our best estimates based on the facts and circumstances available to us at the time, different estimates reasonably could have been used in the current period. In addition, changes in the accounting estimates that we use are reasonably likely to occur from period to period, which may have a material impact on the presentation of our financial condition and results of operations. Although we believe our estimates, assumptions, and judgments are reasonable, they are based on information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions. Management has discussed the development and selection of these critical accounting policies and estimates with the audit committee of the board of directors.

Loyalty Program Future Redemption Obligation and Revenue Recognition

We utilize an actuary to assist with the valuation of the deferred revenue liability related to the loyalty program. Changes in the estimates, including the anticipated timing and value of future point redemptions and an estimate of the breakage for points that will not be redeemed, could result in further material changes to our liability and the amount of revenues we recognize when redemptions occur. See Part IV, Item 15 "Exhibits and Financial Statement Schedule—Note 3 to the Consolidated Financial Statements."

At December 31, 2021, our total deferred revenue liability related to the loyalty program was $814 million. A 10% decrease in the breakage assumption would increase our deferred revenue liability related to the loyalty program by approximately $42 million.

Equity Method Investments

We assess investments in unconsolidated hospitality ventures accounted for under the equity method for impairment quarterly. We use judgment to determine whether or not there is an indication that a loss in value has occurred and whether a decline is deemed to be other than temporary, and we consider our knowledge of the hospitality industry, historical experience, location of the underlying venture property, market conditions, and venture-specific information available at the time of the assessment. When there is an indication that a loss in value has occurred, judgment is also required in determining the assumptions and estimates to use when calculating the fair value.

Changes in economic and operating conditions impacting these estimates and judgments could result in impairments to our equity method investments in future periods. Historically, changes in estimates used in the impairment assessment process have not resulted in material impairment charges in subsequent periods as a result of changes made to those estimates. See Part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 4 to our Consolidated Financial Statements."

Acquisitions

Assets acquired and liabilities assumed in acquisitions are recorded at fair value as of the acquisition date. We use judgment to determine the fair value of the assets or businesses acquired and to allocate the fair value to identifiable tangible and intangible assets. Generally, tangible assets acquired include property and equipment, and intangible assets acquired may include management and franchise agreement intangible assets, brand intangible assets, customer relationship intangible assets, or goodwill in a business combination. Changes to the significant assumptions or factors used to determine fair value, in particular assumptions related to cash flow projections, inclusive of revenue projections, and the selection of discount rates, could affect the measurement and allocation of fair value. See Part IV, Item 15 "Exhibits and Financial Statement Schedule—Notes 7 and 9 to the Consolidated Financial Statements."

Goodwill and Indefinite-Lived Intangible Assets

We evaluate goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter of each year using balances at October 1 and at interim dates if indicators of impairment exist.

We are required to apply judgment when determining whether or not indications of impairment exist. The determination of the occurrence of a triggering event is based on our knowledge of the hospitality industry, historical experience, location of the property or properties, market conditions, and specific information available at the time of the assessment. The results of our analysis could vary from period to period depending on how our judgment is applied and the facts and circumstances available at the time of the analysis. Judgment is also required in determining the assumptions and estimates used when calculating the fair value of the reporting unit or the indefinite-lived intangible asset.

Historically, changes in estimates used in the goodwill and indefinite-lived intangible assets valuations have not resulted in material impairment charges in subsequent periods, and at December 31, 2021, a 10% decline in the underlying cash flows or

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a 1% increase in the discount rates or terminal capitalization rates would not result in an impairment of our goodwill or indefinite-lived intangible assets. In periods which are close to an acquisition, we would expect fair value to approximate carrying value and do not consider this to be indicative of an impairment risk, absent other factors. See Part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 9 to our Consolidated Financial Statements."

Property and Equipment, Operating Lease ROU Assets, and Definite-Lived Intangible Assets

We evaluate property and equipment, operating lease ROU assets, and definite-lived intangible assets for impairment quarterly, and when events or circumstances indicate the carrying value may not be recoverable, we evaluate the net book value of the assets by comparing to the projected undiscounted cash flows of the assets. We use judgment to determine whether indications of impairment exist and consider our knowledge of the hospitality industry, historical experience, location of the property, market conditions, and property-specific information available at the time of the assessment. The results of our analysis could vary from period to period depending on how our judgment is applied and the facts and circumstances available at the time of the analysis. When an indicator of impairment exists, judgment is also required in determining the assumptions and estimates to use within the recoverability analysis and when calculating the fair value of the asset or asset group, if applicable.

Changes in economic and operating conditions impacting the judgments used could result in impairments to our long-lived assets in future periods. Historically, changes in estimates used in the property and equipment and definite-lived intangible assets impairment assessment process have not resulted in material impairment charges in subsequent periods as a result of changes made to those estimates.

As a result of the acquisition of Two Roads Hospitality LLC ("Two Roads") and ALG, we recorded management agreement intangibles for both operating and pipeline hotels. During the years ended December 31, 2021 and December 31, 2020, we recognized $8 million and $9 million of impairment charges, respectively, related to management agreement intangible assets for contracts that terminated. We may incur impairment charges in a future period if agreements terminate, the timing of which is unpredictable. See Part IV, Item 15 "Exhibits and Financial Statement Schedule—Notes 7 and 9 to the Consolidated Financial Statements."

Incremental Borrowing Rate and Accounting for Leases

In determining the present value of our operating lease ROU assets and lease liabilities, we estimate an incremental borrowing rate ("IBR") by applying a portfolio approach based on lease terms. Certain of our leases have terms that exceed 30 years. Given the lack of publicly available data for longer-term borrowing rates, determining the IBR for certain of our longer-term leases requires additional judgment. Changes in these estimates could result in a material change to our lease liabilities. See Part IV, Item 15 "Exhibits and Financial Statement Schedule—Note 8 to the Consolidated Financial Statements."

At December 31, 2021, we had $384 million of operating lease liabilities recorded on our consolidated balance sheet. A 1% decrease in our estimated IBR would increase our operating lease liabilities by approximately $31 million.

Guarantees

We enter into performance guarantees related to certain hotels we manage. We also enter into debt repayment guarantees with respect to unconsolidated hospitality ventures and certain managed hotels. We record a liability for the fair value of these guarantees at their inception date. In order to estimate the fair value, we use a Monte Carlo simulation to model the probability of possible outcomes. The valuation methodology requires that we make certain assumptions and judgments in our determination of the fair value, which are based on our knowledge of the hospitality industry, market conditions, location of the property, and specific information available at the time of the valuation.

Income Taxes

Judgment is required in addressing the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns (e.g., realization of deferred tax assets, changes in tax laws, or interpretations thereof). In addition, we are subject to examination of our income tax returns by the IRS and other tax authorities. A change in the assessment of the outcomes of such matters could materially impact our consolidated financial statements.

We evaluate tax positions taken or expected to be taken on a tax return to determine whether they are more likely than not of being sustained, assuming that the tax reporting positions will be examined by taxing authorities with full knowledge of all relevant information, prior to recording the related tax benefit in our consolidated financial statements. If a position does not meet the more likely than not standard, the benefit cannot be recognized. Assumptions, judgment, and the use of estimates are required in determining if the "more likely than not" standard has been met when developing the provision for income taxes. A change in the assessment of the "more likely than not" standard with respect to a position could materially impact our

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consolidated financial statements. See Part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 14 to our Consolidated Financial Statements."

Deferred Income Taxes – Valuation Allowance

We assess the realizability of our deferred tax assets quarterly and recognize a valuation allowance when it is more likely than not that some or all of our deferred tax assets are not realizable. This assessment is completed by tax jurisdiction and relies on the weight of both positive and negative evidence available, with significant weight placed on recent financial results. Cumulative pre-tax losses for the three-year period are considered significant objective negative evidence that some or all of our deferred tax assets may not be realizable. Cumulative reported pre-tax income is considered objectively verifiable positive evidence of our ability to generate positive pre-tax income in the future. In accordance with GAAP, when there is a recent history of pre-tax losses, there is little or no weight placed on forecasts for purposes of assessing the recoverability of our deferred tax assets. When necessary, we use systematic and logical methods to estimate when deferred tax liabilities will reverse and generate taxable income and when deferred tax assets will reverse and generate tax deductions. Assumptions, judgment, and the use of estimates are required when scheduling the reversal of deferred tax assets and liabilities, and the exercise is inherently complex and subjective.

We generated significant pre-tax losses in 2020 due to the impact of the COVID-19 pandemic, and during the three months ended March 31, 2021, we entered into a three-year U.S. cumulative loss position. As a result of our three-year U.S. cumulative loss and the scheduling estimates discussed above, we recognized a valuation allowance during the year ended December 31, 2021. When pre-tax income returns to normalized levels, we will consider the pre-tax income as positive evidence weighted within our analysis to evaluate the realizability of our U.S. deferred tax asset balances and determine whether a portion of the valuation allowance can be reversed. However, significant judgment will be required to determine the timing and amount of any reversal of the valuation allowance in future periods. See Part IV, Item 15, "Exhibits and Financial Statement Schedule—Note 14 to our Consolidated Financial Statements."