During the company’s most recent earnings call, officials with Hyatt Hotels Corporation detailed how they plan to keep growing their brands by strategically acquiring locations to develop properties that will likely be flipped to new owners in the future.
CHICAGO—At a time when many hotel brand companies take pride in being asset-light, Hyatt Hotels Corporation officials are pinning their hopes for future brand growth on spending on owned real estate and doing their own development projects to get their brands in key locations.
That message from President and CEO Mark Hoplamazian and CFO Pat Grismer was repeated often during the company’s fourth-quarter and full-year 2016 earnings call Thursday. During the call, company officials stressed that they have access to significant liquidity, through both a $1.4 billion revolving credit facility and roughly $600 million in cash on their balance sheet, to continue to make strategic acquisitions.
The company also expects to receive a significant cash infusion before the end of the first quarter if an announced plan for TPG’s Pace Holdings to combine with Playa Hotels & Resorts goes through. That deal would include paying Hyatt roughly $290 million for its shares in Playa.
“The strength of our balance sheet, including our owned and leased hotel portfolio, our unconsolidated joint venture hotels and other investments, such as the preferred and common interest that we hold in Playa, allows us to pursue new investments, such as Miraval, without materially increasing our leverage or constraining our liquidity for future opportunities,” Hoplamazian said, referring to the $215 million-acquisition of the resort and spa company Miraval Group.
The growth strategy revolves around the company’s established asset recycling program, in which it engages in first-party development then looks to sell or move assets into joint ventures, sometimes even before initial construction has begun. Company officials said this strategy has multiple benefits including: guaranteeing brand presence in key locations, replenishing capital via asset disposition and increasing ongoing fee growth by including long-term management deals as part of the sale.
Hoplamazian said this is a tact the company has taken in growing the Hyatt Centric brand, and they are confident in the ongoing strength of the recycling program.
“We pursue different modes depending on what the opportunity looks like,” he said. “In the case of the (Hyatt Centric) properties, we're confident that they are very attractive and that we'll be able to identify strong partners with whom we can either partner or then sell the projects to.”
Development and acquisitions
In addition to the Hyatt Centric developments in Portland, Oregon and Philadelphia, Hoplamazian said his company made a couple of key acquisitions to help launch its new soft brand, The Unbound Collection. The company also had a number of joint ventures built to help secure key locations for the Hyatt Place and Hyatt House select service brands.
Hoplamazian said those brands continue to be strong performers for the company overall.
Increased supply growth, he said, will not be enough to deter the company from using development to spur brand growth. Hoplamazian also believes the financing environment will keep supply growth in check.
“I think that that’s actually another factor that will create some measure of buffer, I guess, or maybe a limiter on how much new development occurs,” he said.
But while real estate ownership has been a strength of Hyatt’s, don’t expect the company to spin off owned assets, as Hilton has and La Quinta Holdings plans to do, Hoplamazian said.
“We view our ownership of hotel real estate as a part of our business in that we believe it makes us (better managers),” he said.
Hoplamazian also noted that acquisition targets could veer outside of typical hotel industry investments and fall more in line with the company’s recent acquisition of Miraval.
Hyatt officials have been open about their plans to see more investments and brands outside the traditional hotel industry and into what they call “adjacent spaces,” which they say would provide added value to their customers and guests, including the large corporations which book Hyatt’s meeting space.
“We believe that these platforms, and there are others that we’re pursuing that you’ll hear more about when we have more specific things to talk about, will be upfront investments, leveraging the capabilities that we’re investing in across our existing business but, very importantly, building things that are unique experiences outside of our traditional hotel business,” Hoplamazian said.
A rocky 2016
During the call with investors, Hoplamazian was quick to describe growth of revenue per available room in rather muted terms, but noted there are still positive signs from the past year.
“Despite modest RevPAR growth (of 2.5%), our adjusted (earnings before interest, taxes, depreciation and amortization) for the full year grew nearly 5% to $785 million,” he said.
Hoplamazian also pointed out that Hyatt’s luxury and upper upscale hotels in the U.S., which reported RevPAR increases of 3.1% and 1.7% respectively, outpaced the growth seen in those segments for the U.S. The company has also seen eight consecutive quarters of market share growth.
The company continues to see relatively weak performance in Europe, particularly France. That ended up having a significant impact on the company’s bottom line regionally, as the combination of security issues in the country and planned renovations in some of the company’s larger properties have triggered performance guarantee payments, Grismer said.
“For the full-year 2016, our guarantee expense was $64 million,” he said. “Looking forward to 2017, we anticipate our guarantee expense to be approximately $80 million due to renovations at the (Hyatt Regency Paris Étoile, Grand Hyatt Cannes Hôtel Martinez and Hôtel du Louvre).”
Hyatt opened 59 hotels in 2016, up from 49 in 2015.
Q4 performance and 2017 outlook
For the fourth quarter of 2016, Hyatt saw 2% comparable system-wide RevPAR growth and a 3.9% decrease in adjusted EBITDA to $172 million.
Hyatt officials are projecting RevPAR growth between 0% and 2% for 2017 and full-year adjusted EBITDA between $795 million and $830 million. Ultimately, the company expects net income between $94 million and $129 million for the year.
As of press time, Hyatt’s shares were trading at $56.09, up 1.5% year to date. The Baird/STR Hotel Stock Index was up 21.1% for the same period.