Hyatt CEO upbeat on room growth, downplays China impact
Hyatt CEO upbeat on room growth, downplays China impact
20 FEBRUARY 2020 5:01 PM

Executives at Hyatt Hotels Corporation praised the development team for a strong growth year in 2019, confirmed the conclusion of integrating the brands acquired in the Two Roads Hospitality deal and adjusted their outlooks of Asia/Pacific business due to coronavirus.

CHICAGO—Along with touting that Hyatt Hotels Corporation set a new record for room openings in 2019, executives on a recent earnings call also praised staff efforts to fully integrate the former Two Roads Hospitality brands into the Hyatt portfolio.

Hyatt opened 90 hotels and added more than 19,000 rooms in 2019, representing a net increase of 7.4%, President and CEO Mark Hoplamazian said Thursday during a fourth-quarter earnings conference call. At the end of the year, the company’s global pipeline surged to approximately 500 properties with about 101,000 rooms, which equals 45% of its open portfolio worldwide.

• Click here for more fourth-quarter earnings coverage.

The coronavirus (COVID-19) outbreak has caused 26 Hyatt hotels to close in Greater China, and the properties that remain open are operating at “very low occupancy,” CFO Joan Bottarini said.

However, she said that Hyatt has some cushion in the Asia/Pacific region from significant business interruption due to several factors.

After the sale of the Grand Hyatt Seoul in December, the company has little owned or leased real estate in the region. Second, only 22% of its consolidated base incentive and franchisees fees come from APAC, with 11% coming from Greater China. Lastly, while travel restrictions will certainly affect outbound Chinese travel to other Asia/Pacific markets, Bottarini said Hyatt’s outbound Chinese travel to other global regions doesn’t make up a significant part of its business.

“The outbound Chinese travel to global markets outside of Asia/Pacific makes up a very small percentage of our rooms revenue,” she said. “And as a point of reference, inbound Chinese travel into the U.S. makes up less than 1% of total U.S. rooms revenue.”

Hoplamazian noted that the ways in which Hyatt’s business is hurting in China are affecting its competitors there, too.

“Yes, we're going to focus on how we can mitigate the impacts and so forth,” he said. “The fact is we live in this market along with everyone else, and I think the key for us is maintaining the strength of our relationships and the strength of our performance on a relative basis, and that's what I think you'll see from us this year.”

Overall, Bottarini estimated Hyatt could see adjusted earnings before interest, taxes, depreciation and amortization fall between $1 million and $2 million “for every one point of decline in Greater China (revenue per available room).” Construction delays could also affect Hyatt’s net rooms growth later in the year.

“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,” she said.

Along with opening 90 hotels in 2019, the company’s pipeline increased by 13% to more than 101,000 rooms during the year, equal to 45% of Hyatt’s open rooms worldwide, Hoplamazian said in an earnings release.

Two Roads integration and transactions appetite
2019 was a significant year for Hyatt’s integration of Two Roads Hospitality, which it acquired in 2018 including its five brands: Alila, Destination, Joie de Vivre, Thompson, and Tommie. The company folded all but Destination into a lifestyle division, which was created in 2019, alongside Andaz and Hyatt Centric.

“The integration really achieved something very important for us in setting up a lifestyle division that has great focus in terms of how we go to market,” Hoplamazian said. “That has yielded a tremendous increase in discussions that we have underway. … We want to convert those discussions (about) pipeline into open hotels, but we stand ready and have the capability and capacity to take on an additional acquisition or new acquisition if we were successful in finding something.”

With the former Two Roads brands firmly settled in Hyatt’s portfolio, Hoplamazian said he would be interested in additional M&A opportunities if those deals could add similar value.

“The issue for us is really focusing on customer base and making sure that the acquisitions that we look to execute have a customer base that fits into the strategy that we've pursued, and is an enhancement—not just an addition of a bunch of rooms and some fees—but really something that carries with it more strategic impact and ultimately more financial impact and leverage for us,” he said. “So that's a key screen that we've applied. I think the other close second screen item is growth. We've looked at a number of interesting potential acquisitions over the past year that had wonderful embedded assets, but no growth. And so that's not particularly attractive to us.”

Earnings performance and outlook
In the fourth quarter, Hyatt’s net income increased 621.5% year over year to $321 million and adjusted EBITDA increased 5.3% to $191 million. Comparable systemwide RevPAR dipped 0.5% to $130.93 as a 0.9% decrease in average daily rate to $181.74 outweighed a 0.2% occupancy increase to 72%.

For the full year, Hyatt’s net income fell 0.4% to $766 million and adjusted EBITDA decreased 2.9% to $754 million. Comparable systemwide RevPAR increased 0.7% to $136.27 as ADR was flat at $182.97 and occupancy increased 0.5% to 74.5%.

In their 2020 outlook, Hyatt executives forecast full-year comparable systemwide RevPAR growth between a 0.5% decline and a 1.5% increase. Net income is expected to fall between $113 million and $144 million, while adjusted EBITDA should range between $760 million and $780 million.

At press time, Hyatt’s stock price was trading at $92.86, up 3.5% year to date. The Baird/STR Hotel Stock Index was down 2.8% over the same period.

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