During the company’s latest earnings call, Hyatt Hotels Corporation President and CEO Mark Hoplamazian said his company is doubling down on being asset-light, remains confident on its Chinese growth plans and is unlikely to make a third attempt at a “sharing platform.”
CHICAGO—Officials with Hyatt Hotels Corporation are pleased so far with the results they’ve seen in their efforts to sell down the company’s owned assets and reaffirmed plans to continue in that direction during the company’s first-quarter earnings call with investors.
President and CEO Mark Hoplamazian noted it’s still too early to announce the next wave of asset sales, but the response from buyers on the market has been similar to what the company saw at the beginning of the process that ended with the $1-billion sale of a three-hotel portfolio to Host Hotels & Resorts in early 2018.
“What I would say is the interest in the properties we are pursuing the sale of at this point has been high,” he said. “I don’t see a significant different between this and when we sold properties in the first quarter last year in terms of the signs of interest and the people pursuing them, but it’s hard to compare two different processes because it all depends on the markets and the assets.”
Company officials detailed plans to key in on asset-light growth—focusing on management and franchise fee revenues—during their investor day in early March. They announced plans to sell down an additional $1.5 billion in assets by 2022, following an initial pledge to sell $1.5 billion that included the Host transaction.
The company saw year-over-year 12% fee growth during the first quarter, which they believe underlines the overall strength of their strategy.
CFO Joan Bottarini also noted the company saw 13.7% net rooms growth, and the company’s pipeline has been bolstered by stronger-than-expected developer interest in the brands acquired in the Two Roads Hospitality purchase during the fourth quarter of 2018.
“We believe (the deal) will continue to drive industry-leading net rooms growth going forward,” she said.
Chinese growth strategy
A relatively weak Chinese economy has suppressed the growth of hotel operating metrics within the country, but Hyatt officials said they remain committed to the long-term growth prospects in the country. That includes a joint venture with Homeinns Hotel Group to create an upper-midscale brand aimed at young travelers in the country.
Hoplamazian noted that brand will slot perfectly within Hyatt’s existing brand portfolio, which he notes targets high-end travelers, and Homeinns’ economy-oriented brands.
“We don’t now participate (in upper midscale) and don’t plan to go lower than the JV brand, and they don’t want to go higher,” he said.
The long-term hope of the brand would be to groom a new generation of Hyatt-loyal travelers with income potential to eventually move up to the more expensive brands.
“What we expect to see is as highly qualified people in the workforce see their incomes growing at a faster pace, that will be a significant feeder into Hyatt brands, and the adjacent brands would be Hyatt House and Hyatt Place,” he said.
A step back from home sharing
Analysts asked if Marriott International’s plans for its new Homes & Villas by Marriott International platform will spur a similar move by Hyatt. The company has made a couple high-profile forays into the home-sharing space. Their first investment was into Onefinestay, which was sold off when that company was acquired by Accor.
Their second was an investment into Oasis, but that company failed to achieve the operating results Hyatt officials had hoped for before selling it to Vacasa.
Hoplamazian said the company still has a presence in the residential space through branded residences, serviced apartments, a small timeshare business and Destination’s management business picked up in the Two Roads deal, which he noted is concentrated largely in “ski destinations and Hawaii.”
But the company likely won’t be making another investment in something that “looks like a sharing platform.”
“When dealing with high-end properties and trying to maintain a level of quality on a consistent basis, the delivery model is expensive, and it’s hard to get to the point where you are seeing from a financial return perspective a sustainable model,” Hoplamazian said. “I think over time the true sharing-platform model is getting more challenging because of regulatory issues.”
Systemwide revenue per available room grew 1.8% during Q1 and was up 2.7% for the company’s owned and leased properties. U.S. hotels were significantly more challenged, with RevPAR falling 0.3% overall, driven by a 1.3% drop at select-service properties.
Adjusted earnings before interest, taxes, depreciation and amortization fell 7.3% to $187 million for the quarter or 6.1% on a constant-currency basis.
Despite the weak metrics, Hyatt officials said they’re maintaining their full-year guidance of 1% to 3% RevPAR growth. Bottarini noted there are significant signs that the second half of the year will be stronger than the first half.
As of press time, Hyatt was trading at $77.37 a share, up 14.4% year to date. The Baird/STR Hotel Stock Index was up 17.4% for the same period.