Hyatt to continue as buyer and seller
01 MAY 2014 6:14 AM
Hyatt executives told analysts they intend to remain on both sides of the hotel buying and selling equation.
CHICAGO—Hyatt Hotels Corporation remains aggressive in a capital recycling program that includes the buying and selling of hotel properties and portfolios. During an earnings call with analysts on Wednesday, Hyatt executives said the strategy has helped drive the company’s performance.
“We intend to be active on both sides of the equation through this cycle because of the positive effects from both an earnings perspective and an asset exposure perspective,” said Mark Hoplamazian, president and CEO.
Over the past year, the company has acquired several hotels or interests in hotels, and in the first quarter it completed a $313-million sale of 10 properties to RLJ Lodging Trust. Hyatt will continue to manage the properties under a long-term agreement.
“We purchased the majority of these hotels in 2011, so we were able to buy these properties, rebrand them, improve operations and then sell them at attractive returns while maintaining our presence under long-term agreements for each hotel,” Hoplamazian said.
He pointed to another transaction as example of the value of its recycling strategy.
Earlier this month, Hyatt sold its 50% stake in the 1-year-old, 296-room Hyatt Place in downtown Austin, Texas. The buyer was White Lodging Services, its joint-venture partner.
“We had invested $7 million in equity into the venture two years ago, and on sale of the hotel we received approximately $25 million for our interest,” Hoplamazian said. “This transaction is another example of how we can grow our presence and generate strong returns on our investments at the same time.”
In another deal, Hyatt has agreed to purchase the Hyatt Regency Grand Cypress in Orlando, Florida, for $190 million. The transaction is expected to close during this quarter.
“Our all-in basis in this hotel is under $300,000 per key inclusive of renovation capital we invested over the last few years,” Hoplamazian said. “We’re excited to own the hotel but also to have the flexibility to recycle the property at the appropriate time.”
The company recently put nine of its hotels on the market for sale.
A strong quarter
Improvements in occupancy, average daily rate and revenue per available room helped Hyatt record strong earnings in the first quarter. The company posted net income of $56 million in the first quarter, compared to net income of $8 million in the first quarter of 2013.
For comparable system-wide hotels, occupancy increased to 70.6% from 68.6% the year before. ADR improved 3% to $180.39, while RevPAR increased 6%.
Business was particularly strong at properties in the United States, which saw RevPAR climb 8.4% at full-service properties and 6.9% at select-service hotels.
Shares of Hyatt rose 4.2% in trading on Wednesday and are up 14% year to date. The R.W. Baird/STR Hotel Stock Index is up 4.4% year to date.
During the quarter, the company opened eight hotels, including five in the Americas, two in India and one each in China and the Netherlands. Its pipeline of executed management and franchise agreements includes 240 hotels with approximately 54,000 rooms.
Comeback in group business
During the quarter, revenues from group business increased 9% at U.S. full-service hotels managed by Hyatt. According to Hoplamazian, markets such as San Francisco, Orlando and Chicago have experienced strong group business, which has more than offset relatively softer results in the Washington, D.C., market. Hyatt generates 45% of its room revenues from groups.
“Group occupancy levels and higher spending by in-house groups helped our (food-and-beverage) business,” Hoplamazian said. “Specifically, banquet revenue per group room was up in the mid-single-digit percentage range during the quarter.”
Group revenue booked during the quarter for the rest of the year increased 13%, while total group production rose 11% during the period.
While group business from associations has been steady, Hoplamazian said business from corporate groups is improving at a faster rate. Business from technology companies is leading the comeback in group business, he said, followed by manufacturing, insurance and financial services, and pharmaceutical companies.
“The pharma segment has evolved and consolidated over the past few years,” he said, noting that drug companies are holding fewer large meetings to launch new drugs in favor of smaller, focused events. “The meetings haven’t stopped; they’ve just changed in nature. The (business) will continue to evolve with the proliferation of new development in the pharma space.”
While government business accounts for less than 2% of Hyatt’s group revenues, Hoplamazian said it was up in the first quarter for the first time in a number of quarters.
The 210-room Park Hyatt New York is expected to open during the third quarter. Hoplamazian said Hyatt will purchase a two-thirds interest in the hotel upon completion for an investment of approximately $250 million.
He said the company is looking for financing for the deal and expects to finance about half the purchase price with debt.
While he said growth targets differ for each of Hyatt’s brands, the company is focused on expansion in several key global markets, including London, Miami, San Francisco, Hong Kong and Los Angeles. For select-service properties, the focus is on urban development.
For resort properties, growth targets are Mexico and the Caribbean in North America and Thailand and China in Asia.