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2019 a mixed bag for Hyatt

Hyatt Hotels Corp. ended 2019 with a mixed bag of numbers, reporting growth in some metrics and declines in others—appropriate for a company that kicked off the year wrapping up a major acquisition. Having completed the integration of Two Roads Hospitality, Hyatt has been attracting “significant developer interest” for the Alila, Destination, Joie de Vivre, Thompson and tommie brands since the acquisition was completed at the end of 2018. Furthermore, President/CEO Mark Hoplamazian said, the company expects these new brands to drive further growth in the future. 

“Our integration efforts were well-executed and in line with budget and expected timing,” he said. “Over the past year, we integrated hotels by brand into our systems and processes and we're seeing exploration of the brands by our World of Hyatt members with the roomnight penetration rate for these brands running in the mid-20s about four months following inclusion in the program on average. We also see strong interest from developers around the world with meaningful additions to our lifestyle and resort pipeline.” 

Ups and Downs

Hyatt’s net income was $321 million in the fourth quarter of 2019, compared to $44 million in the fourth quarter of 2018. Adjusted earnings before interest, taxes, depreciation and amortiztion increased 5.3 percent to $191 million, up 5.7 percent in constant currency, and revenue per available increased 1.4 percent at comparable owned and leased hotels. Occupancy increased 10 basis points and average daily rate increased 1.4 percent during the quarter.

But adjusted net income was $49 million in the fourth quarter of 2019, compared to $69 million during the same quarter in 2018, and comparable systemwide RevPAR decreased 0.5 percent. “The shift in the timing of the Jewish holidays had a negative impact on systemwide RevPAR of approximately 60 basis points and Hong Kong drove an additional negative impact of 110 basis points,” said CFO Joan Bottarini. 

Things weren’t much better for the full year. Net income decreased 0.4 percent to $766 million and adjusted EBITDA decreased 2.9 percent to $754 million, down 2 percent in constant currency reflecting significant transaction activity, the company noted. While comparable systemwide RevPAR increased 0.7 percent—including a 1 percent increase at comparable owned and leased hotels—this metric was negatively impacted by approximately 40 basis points as a result of political unrest in Hong Kong. Comparable U.S. hotel RevPAR decreased 0.6 percent and comparable owned and leased hotels operating margin was flat at 24.2 percent. Adjusted EBITDA margin decreased 170 basis points to 29.2 percent in constant currency.

In an email to investors, Michael Bellisario, a senior research analyst with RW Baird, said fourth quarter’s earnings were “well ahead of expectations” and that all segments and line items performed better than expected. 

Asset-Lighter

Hyatt arranged the sale of several properties last year for nearly $1 billion, approximately 65 percent of the company’s stated sell-down target. One of the biggest deals was announced in December, the offloading of the 615-room Grand Hyatt Seoul (South Korea) for approximately $481 million (approximately $467 million net of closing costs and proration adjustments) to an unrelated third party. Hyatt entered into a long-term management agreement for the property upon sale. 

The company also sold its right to acquire the Hyatt Regency Portland, a 600-room headquarters hotel at the Oregon Convention Center. “We realized a gain on this transaction of approximately $16 million upon closing,” Hoplamazian said. Hyatt also sold approximately 60 percent of its ownership interest in the Hyatt Centric in Philadelphia. “This was an opportunity we identified over three years ago to grow our then-recently introduced Hyatt Centric brand by developing a hotel in an important U.S. market in which we are underrepresented,” he said. The sale netted approximately $68 million in proceeds, and the hotel is scheduled to open later this year. 

“In summary, over the last two years, we have sold approximately $2.4 billion of owned real estate at an average multiple of more than 17.5 times estimated annualized adjusted EBITDA and retained a long-term management contract for every hotel sold,” Hoplamazian said. The company remains on track to successfully execute plans to sell approximately $1.5 billion of additional real estate by March 2022 as part of its capital strategy

Unit Growth

The company's number of net rooms was 7.4 percent higher in the fourth quarter of 2019 compared to the fourth quarter of 2018. During the 2019 fiscal year, the company added a record 72 net hotels and 15,656 rooms to its portfolio.

Beyond unit growth, the company added 35 new markets to its portfolio last year through both new hotel openings and conversions— “and that excludes the over 140 new markets we added through a significant expansion of our collaboration with Small Luxury Hotels,” Hoplamazian added. 

Related article: Hyatt plans to open nearly 200 new hotels in Americas by 2022

As of the end of the year the company had executed management or franchise contracts for approximately 500 hotels with approximately 101,000 rooms, compared to approximately 445 hotels with approximately 89,000 rooms at the end of 2018. 

“We believe our pipeline supports sustainable growth over time, and in 2019, our pipeline expanded by over 13 percent to approximately 101,000 hotel rooms, equivalent to 45 percent of our global rooms portfolio open today,” Hoplamazian said.

What’s Ahead

For 2020, Hyatt expects its net income to be between $113 million and $144 million, with adjusted EBITDA between $760 million to $780 million. Comparable system-wide RevPAR growth is expected to be in the range of -0.5 percent to 1.5 percent, as compared to fiscal year 2019, and capital expenditures are expected to be approximately $250 million. Continued weakness in Hong Kong, at least for the first half of the year, and slower growth trends in the Asia Pacific region likely will cause the higher end of the RevPAR growth range to be unachievable, Bellisario cautioned in his email to investors.

Hyatt expects to grow units, on a net rooms basis, by approximately 6.5 percent to 7 percent, reflecting more than 80 new hotel openings.

COVID-19 Impact

Following the trend of many global hotel companies, Hyatt has closed 26 hotels in the greater China area over concerns of the COVID-19 coronavirus outbreak. “Many others that remain open are running at very low occupancies,” Bottarini said. In all, business at Hyatt's hotels in China is down 90 percent, she said. “There is no question there will be an impact to our results, but it's simply too early to reasonably quantify what the full-year impact to our business in 2020 might be.” 

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As such, the company’s 2020 outlook does not include the impact of the current outbreak of the coronavirus on its business performance. “It remains unclear how long the impact of the outbreak of the virus will continue,” Hoplamazian said. “At this time, we are unable to estimate the magnitude of the full-year impact on travel patterns and on our results.”

Still, Bottarini offered some examples of what could happen as the crisis continues. “We expect 1 percent of Greater China RevPAR decline to equal $1 million to $2 million of EBITDA on an annual basis, and that includes the impact of outbound travel,” she said. “So, for example, if full-year China RevPAR was down 10 percent, the full year impact would be about $10 million to $20 million or $15 million at the midpoint. So if Greater China RevPAR declined 20 percent, the full-year impact would be $30 million at the midpoint. So where we are in the range depends on the nature and extent of the stabilization period and recovery and we don't presently believe that the current conditions will persist for an extended period of time.”