Construction snags slow Hyatt’s Miraval expansion
 
Construction snags slow Hyatt’s Miraval expansion
02 AUGUST 2019 8:26 AM

Speaking during the company’s second-quarter earnings call, Hyatt Hotels Corporation officials said they remain optimistic in the face of construction issues slowing two Miraval resort projects.

CHICAGO—Construction problems have led to delays for Hyatt Hotels Corporation’s Miraval properties in Texas and Massachusetts, putting both wellness resorts between two and three quarters behind schedule to open or ramp-up.

Speaking during the company’s second-quarter earnings call with analysts, Hyatt officials said the opening of the Lenox, Massachusetts, property has been delayed by permit, weather and site condition issues, while the Austin, Texas, property is now fully open and operational but is delayed in full ramp-up due to construction labor issues in the market.

“Miraval Austin opened earlier this year, however construction challenges led to inventory displacement and operational difficulties,” CFO Joan Bottarini said. “Effective as of the end of July, all rooms and facilities are complete, and the full Miraval experience is now available to guests.”

President and CEO Mark Hoplamazian said there were fixes that had to be made in Austin.

“We took some time to do some rectification work, which caused us to have to close a portion of the resort for some period of time,” he said.

Bottarini noted the Miraval Berkshires in Lenox, Massachusetts, “faces operating losses” because portions of the resort have to remain open as it’s converted to the Miraval brand from the Cranwell Spa & Golf Resort due to “contractual obligations.” A full opening is projected for the second quarter of 2020.

Hoplamazian estimated the ramp-up of the Miraval properties will take roughly two to three years, which is similar to most full-service hotels.

Ramp-up depends “on the market, the nature of the hotel, the location, and a number of other things, but you’d typically look at a two- to three-year ramp-up period, and that’s what we expect here,” he said.

But regardless of the short-term obstacles, Hoplamazian said there is still plenty of reason to be bullish on Miraval’s long-term growth potential. He said analysts should look at the high performance at the original Tuscon, Arizona, property to get a sense of the earnings Miraval resorts can generate.

“Occupancy in Tuscon is running over 70% year to date and (average daily rate) is over $530,” he said. “But maybe even more importantly than those statistics, you have to recognize that the commercial model for Miraval yields a business in which rooms revenue represents only about a third of the total revenue base for each resort.”

Hoplamazian said the remaining two-thirds comes from food and beverage, experiences, treatments and services.

He noted the Tuscan resort had “revenue in excess of $50 million this year and (earnings before interest, taxes, depreciation and amortization) approaching $15 million, which is up 40% to 50% from the time we bought it.”

Reduced guidance
Hyatt officials have reduced their guidance projections for full-year 2019. Revenue-per-available-room guidance is now 1% to 2% growth, down from 1% to 3%, and adjusted EBITDA is expected to be between $755 million and $775 million, down from $780 million to $800 million.

Bottarini attributed roughly two-thirds of the earnings guidance reduction to the Miraval issues.

The company did improve its outlook for rooms growth and net income, though.

Q2 performance
Systemwide RevPAR was up 1.3% year over year for Hyatt, buoyed by international growth as U.S. RevPAR fell 0.3% in the quarter.

The company saw a 12.6% increase in net rooms excluding the impacts of the Two Roads Hospitality acquisition.

Adjusted EBITDA fell 2.1% to $213 million, with EBITDA margin of 31.6%, down 260 basis points in constant currency.

As of press time, Hyatt’s stock was trading at $76.49 a share, up 13.1% year to date. The Baird/STR Hotel Stock Index was up 16.1% for the same period.

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