Hyatt embraces expansion, diversity to sidestep strong dollar woes
There was a lot of time for celebration during Hyatt Hotels Corporation's Q1 2017 earnings call, the first we've heard on Hyatt's performance since buying Miraval Group in January.
The update brings good news for Hyatt's shareholders and lays out a growing web of future developments through 2020, as well as a glimpse into changing group and transient dynamics. If the call had to be summed up in one statement, it would be this from Hyatt president and CEO Mark Hoplamazian: “We are doing what we said we were going to do.”
Hoplamazian went on to lay out Hyatt's overall performance for the quarter, showing the company's revenue per available room was up 4.
7 percent in Q1 2017 over the same period last year, with the Americas select-service segment in the lead with a 4-percent increase. Hoplamazian said the company's owned and leased hotels brought in lower than average RevPAR at 2.
7 percent, but if it excluded one under-performing property the results would be skewed more toward a 4-percent rise.
Furthermore, Hyatt entered into a $300-million share repurchase program, and the company's board of directors approved a $500-million repurchase of the company's common stock. This places Hyatt in a position to shift from a net buyer to a net seller of its stock in 2018.
Hyatt also recorded a company net income of $70 million, as well as a 1.8-percent increase in average daily rates.
Pat Grismer, Hyatt's CFO, attributed the beneficial Q1 2017 performance to an early Easter, a shift in dates that could have negative repercussions on Q2 numbers.
Beyond this, Hyatt opened 11 new hotels last quarter, resulting in net room growth between 7 percent and 8 percent for the past eight consecutive quarters.
“We anticipate 2017 will be another year of record openings,” Hoplamazian said. “Included in those is the Grand Hyatt Baha Mar in Nassau [Bahamas], which we will manage.”
More than 50 percent of Hyatt's pipeline consists of Hyatt House and Hyatt Place properties.
Bigger is Better
The new Baha Mar property will add 1,800 rooms and a new conference center to Hyatt's portfolio on its own, and the company's pipeline represents 38 percent of its existing rooms. The company also expects to close on four new assets before the end of Q3 2017, and expects to sell two assets by Q4.
“Our pipeline increased 17 percent over Q1 last year, and our signings continue to outpace openings,” Hoplamazian said. “Ninety-five percent of our pipeline is owned by third parties, and more than 50 percent of it are executed contracts for Hyatt Place and Hyatt House, showing the strength of the select-service sector.”
Hoplamazian also had a lot to say about Hyatt's development in the luxury resort space, a segment he said is not heavily populated by traditional hotel companies. This stems from Hyatt's 11.6-percent stake in Playa Hotels & Resorts, a stake Hyatt plans to use to recycle its asset base to stimulate future growth.
“We now have two brands there and six franchise agreements, a great platform for future growth,” Hoplamazian said. “Given the sometimes opportunistic nature of hotel investment, these investments don't always happen the same quarter or year we investigate them. [Last year] was a year of investment, such as with Miraval Resorts. This year will be one of disposition.”
On the subject of Miraval, Hyatt is currently marketing six hotels under the Miraval brand with three new properties under development.
Hyatt sees Miraval as its chance to establish itself in the wellness space, particularly with high-end travelers, and with that mission in mind Hoplamazian said the acquisition did its job last quarter. But he urged listeners to keep their eyes on the horizon.
“We are still in the early stages of understanding the Miraval brand, so don't expect it to contribute to Hyatt earnings until 2019,” Hoplamazian said. “We're more excited than ever to grow Hyatt by leveraging a powerful wellness brand.”
Hyatt maintains an 11.6-percent stake in Playa Hotels & Resorts
The U.S. is currently feeling the sting of reduced international travel, something Grismer attributed to a stronger dollar, and Hyatt was not immune.
However, while the company saw a double-digit decrease in roomnights from inbound international travel, Grismer said this aspect of the business only accounts for roughly 4 percent of Hyatt's business, resulting in a rooms revenue impact of less than 1 percent.
Furthermore, the company's overseas activity more than made up for slower inbound international bookings in the U.S., with full-service RevPAR up 3 percent in the Europe, Middle East and Africa region.
“After a challenging 2016, the EMEA region is showing growth,” Grismer said. “Revenue from fees is up 3 percent, and occupancy increases helped offset rate declines in the region. India is a particularly bright spot, with RevPAR up 6 percent year-over-year, and in 2017 we expect to expand in India by 12 percent to sustain our upward trajectory in the region.”
One soft point for Hyatt discussed during the call was its group versus transient business. During the question-and-answer portion of the call, Hoplamazian was asked if group business was in line with expectations due to the early Easter, and the head of Hyatt said too many analysts are looking in the wrong place.
“This was overall a strong quarter for group business, but a bit over 85 percent of our targeted group business was already on the books for the first quarter. What we are focused on now is that 15 percent; how do we gauge the potential there,” Hoplamazian said.
“Both 2018 and 2020 are forcasted to be on pace for single-digit growth in the group segment, while 2019 is expected to be down in the single digits. It's hard to make a call, too early to know if a changing dynamic will be sustained.
It's possible corporations are holding onto their spending; we're maybe seeing a compression there.”
Overall, despite its strong numbers Hyatt is still leaning hard on cautious optimism. But the company has many balls in the air, such as the new launch of World of Hyatt, which went live in March. Hyatt is also looking closely at current events to see where the tide may turn and if its new initiatives are paying off.
Hoplamazian summed it up best: “We'll find out in Q2.”
Hyatt Hotels Gets More Profitable as Growth Slows
Hyatt Hotels (NYSE:H) recently posted fourth-quarter earnings results that paired slowing revenue growth with increased profitability. The hotel chain's initial forecast for 2019 predicted sluggish sales gains along with improving finances thanks to robust management fees and cash brought in by property sales.
More on that outlook in a moment. First, here's how the headline results compared against the prior-year period:
Data source: Hyatt's financial filings. *Adjusted earnings don't include gains or losses from property sales.
What happened this quarter?
Core revenue growth slowed for the third straight quarter on weakness in key markets including the U.S. and China. But the company notched solid gains in adjusted earnings and accelerated its property development plans.
Image source: Getty Images.
Key highlights of the quarter include:
- Revenue per average room night (RevPAR) rose 1.5%, which was a slowdown from last quarter's 2.8% jump and the 4% rate that Hyatt enjoyed during the first half of 2018. The increase was a slight disappointment, as it ensured overall 2018 RevPAR of 3.1%, slightly below management's late October forecast of between 3.25% and 3.75% growth.
- Hyatt's occupancy improvement held steady overall, but the company reported lower pricing and average daily spending in a few key markets, including the full-service hotel niche in the U.S. As a result, growth rates in these figures declined for the wider company.
- Management and franchise fees jumped 12% to help adjusted earnings rise 7%. The company's 79% drop in reported net income, meanwhile, was driven by a large property sale in the prior-year period.
- With its asset recycling program, which involves selling some real estate to franchisees while purchasing other properties, generating plenty of excess capital, Hyatt closed out a year in which it spent nearly $1 billion on stock buybacks while initiating — and then raising — a quarterly dividend.
What management had to say
Executives stressed the broader business successes that helped the chain continue its growth streak. “We had a very strong 2018,” CEO Mark Hoplamazian said in a press release, “driven by another year of double-digit growth in management and franchising fees, nearly offsetting the earnings decline in our owned and leased segment, resulting from over $1 billion of asset sales.”
Hoplamazian added, “We believe we are well-positioned to continue to execute our long-term shift to an asset-lighter business model.”
Check out the latest Hyattearnings call transcript.
That asset lightening will include roughly $400 million of further property sales between now and 2020, executives said, which should provide additional funds for growth initiatives and continued cash returns to shareholders. To that end, Hyatt said it is on pace to expand more quickly in the next few years, with 445 hotels, accounting for 89,000 rooms, in development today. A year ago, those figures stood at 330 hotels and 70,000 rooms.
In the meantime, Hyatt issued a conservative forecast for sales growth at existing managed locations, with RevPAR growth set to slow to between 1% and 3%, down from 3.1% last year and 3.3% in 2017.
And, given that the bulk of its $1.5 billion of planned asset sales have already happened, the company expects to return $300 million to shareholders this year, down from about $1 billion in 2018.
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