Playa deal, asset sales help Hyatt buy $800m in stock
 
Playa deal, asset sales help Hyatt buy $800m in stock
04 MAY 2017 3:59 PM

In conjunction with the company’s first quarter earnings announcement, Hyatt Hotels Corporation has announced plans to expand share repurchases, fueled by the sell down of Hyatt’s ownership stake in Playa Hotels & Resorts and the pending sale of six owned hotels.

CHICAGO—Hyatt Hotels Corporation officials’ continued concerns that their company’s stock is being undervalued by investors has spurred them to open a new $500 million round of share repurchases, company officials announced Thursday in conjunction with their first quarter earnings report.

The company had previously committed to a $300 million accelerated share repurchase program, funded by the company’s redemption of its equity in Playa Hotels & Resorts, for which it received $330 million in cash. Hyatt retains an 11.6% stake in Playa.

During the first quarter of 2017, the company purchased roughly 5.5 million class A shares at an average price of $52.48 per share for a total of $288 million. As of the company’s first-quarter earnings call with investors Thursday, Hyatt had roughly $509 million remaining in its total share repurchase authorization.

Hyatt President and CEO Mark Hoplamazian said the continued share repurchases is a sign that the company intends to keep its promise to return cash to shareholders

“This is consistent with what we said about our asset recycling program,” he said. “We’re doing what we said we’re going to do.”

Asset strategy
During the earnings call, Hoplamazian said the company is working on the sale of several owned assets, which was in line with Hyatt’s regular asset recycling strategy. He said they expect four sales to close before the end of the third quarter of 2017 and two more to close by the fourth quarter. He said the proceeds of those asset sales will help fund the company’s latest round of share repurchases.

Analysts on the call asked if the wave of asset sales is a sign the company is looking to adopt an asset-light strategy, similar to competitors Hilton and Marriott International. Hoplamazian said that isn’t the case and this is more of a continuation of their ongoing strategy to buy and develop properties to secure important locations for brands before passing off the projects to developers and owners.

He said the company has always sought to sell off assets as early as possible, sometimes before construction has even began, to reduce their own capital costs.

“This is consistent with how we’ve been behaving,” he said. “I think you’re seeing an increased level of activity in engaging with third-party developers to make sure we’re keeping pace in offloading these commitments.”

The company also regularly develops key properties through joint ventures with developers, and Hoplamazian said more developers who worked with Hyatt on these types of projects are returning to do more. Hyatt’s stakes in those ventures are often sold off at the completion of construction.

“We’re seeing developers who we’ve worked with see we have high quality sites and projects, and that’s desirable for them,” he said. “This allows us to recover the capital we needed to deploy the site, and it gets us a management contract without any key money or other inducements.”

First-quarter performance
Revenue per available room increased 4.7% system wide and 4.8% for U.S. hotels. Globally, the company’s owned and leased properties saw a significantly lower RevPAR growth rate of 2.7%.

Adjusted earnings before interest, taxes, depreciation and amortization increased 17.8% for the quarter to $228 million.

The company also saw a 104.8% increase in net income for the quarter, which was up to $70 million.

As of press time, Hyatt stock was trading at $57.40 a share, up 3.9% year to date. The Baird/STR Hotel Stock Index was up 21% for the same period.

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