Hyatt CEO: Funds for Future Growth Will Come From Real Estate Sales

When it comes to growing Hyatt Hotels & Resorts, the Chicago-based hospitality company is more or less following the lead of its hotel peers.

During the company’s first quarter 2018 earnings call Thursday, CEO Mark Hoplamazian detailed Hyatt’s plans for future growth, noting the continuation of the Hyatt’s “asset-lighter” strategy to sell off a total of $1.5 billion in real estate by 2019, as well as invest even more in the Chinese travel market.

And while other global hotel companies are also pursuing similar strategies, it’s clear that Hyatt is doing so with a distinct understanding of its unique position among its fellow publicly-traded peers.

Compared to competitors such as Marriott or Hilton, Hyatt has a relatively smaller portfolio of properties and global reach. But it’s clear that the company isn’t allowing its smaller footprint be a hindrance to growth.

Asset Lighter, But Not Completely Asset Light

When Hoplamazian first announced last fall that the company would attempt to sell $1.5 billion worth of real estate by 2019, many industry analysts read it as a sign that Hyatt would finally become the more “asset-light” company that its hotel peers have transformed into.

In the past two decades, more global hotel companies have pursued asset-light business models where they own little to no real estate. Recent examples of this include Hilton Hotels, which completed a spinoff of its real estate business in 2017, and AccorHotels, which is currently in the process of a spinoff. Even relatively smaller companies such as Red Lion Hotels Corporation are also attempting to be more asset light to compete and to grow.

For many years, however, Hyatt remained an outlier as a self-proclaimed “asset recycler,” and it appears it will remain that way going forward, according to Hoplamazian’s most recent comments.

“We did not plan to abandon the idea of recycling assets, so we do plan to sell existing assets and utilize proceeds to buy other assets,” Hoplamazian said. “Those acquisitions historically have allowed us to expand in some key markets and to acquire some really important hotels over time.”

Growth Via Acquisitions?

Like many of his fellow hotel CEOs, Wyndham Hotels CEO Geoff Ballotti included, Hoplamazian also said the company is always looking at opportunities to buy and to sell. “… We’re always in the market on the buy side and the sell side because it is the best way to stay current and be able to be responsive,” he noted.

When asked what assets Hyatt may be eyeing for possible acquisitions, Hoplamazian said the company has primarily been reviewing other hotel brands but that it’s “too early to say” anything definitive.

He did not say whether the company was continuing to look at “adjacent spaces” such as wellness or alternative accommodations, both of which Hyatt invested in heavily last year with its acquisitions of Miraval and Exhale and its stake in Oasis.

Hoplamazian also noted, however, that the company’s decision to generate $1.5 billion in real estate sales will not result in an expansion of its owned real estate portfolio, either.

If the company does pursue a growth strategy that involves buying other brands or platforms, Hyatt would — like Marriott did when it spent $13.3 billion to buy Starwood Hotels & Resorts — try to sell off any included real estate.

“Oftentimes, in order to achieve an acquisition of a brand or a platform, you have to acquire real estate with it,” Hoplamazian said. “But our commitment would be to sell down real estate as quickly as we could.”

Focusing on China

A big part of that international growth, Hoplamazian noted, will come from the Greater China region where Hyatt currently has 58 hotels which represent 10 percent of Hyatt’s global rooms. Over the next four years, Hyatt anticipates doubling its presence in China and the amount of fees it will collect from its business in the region. Today, Hyatt’s greater China hotels make up 11 percent, or $54 million, of the company’s global fee revenue.

The Chinese travel market is a particularly important one for global travel brands, not only for its domestic growth but also with regard to outbound travel thanks to a population of 1.4 billion people. During the World Travel & Tourism Council conference last month, Hoplamazian spoke to Skift about the importance of the global middle class, especially in China.

“Travel and tourism revenue is growing at more than twice the rate of GDP growth in China and now comprises more than 2 percent of China’s annual GDP,” he said. “The number of domestic Chinese travelers in 2017 grew almost 13 percent from the prior year, whereas outbound travelers in 2017, of which there were over 130 million, grew 7 percent from 2016. Remarkably, this number is expected to nearly double to 250 million by 2025.”

As part of its focus on growing its business in China, Hyatt recently appointed former Starwood Hotels executive Stephen Ho to lead its business in the region.

It also signed a development franchise deal with China-based Minyoun to grow its Hyatt Place and Hyatt House select-service brands with 50 new hotels over the next five years. Similarly, companies such as Hilton and AccorHotels have also formed strategic partnerships with local Chinese hotel developers in recent years.

Hoplamazian also noted, “We are stepping up our efforts in the digital space, which is of particular importance to engaging effectively with Chinese travelers. We will be enhancing existing technology platforms and pursuing strategic partnerships in this arena while also enhancing payment options and mobile offerings and strengthening our representation within key Chinese e-commerce channels.”

Elevating digital reach in China has been a focus for a number of U.S.-based hospitality companies, many of which have had to acknowledge the widespread use of mobile payment and mobile messaging through platforms such as Tencent, Baidu, and WeChat in the region.

Marriott International, for example, recently deepened its partnership with Alibaba, which is often known as the “Amazon of China,” to launch an exclusive booking portal and enable Alipay mobile payments.

Although Hyatt sees a lot of room to grow its select-service brands in China, especially thanks to its partnership with Minyoun, Hoplamazian said the company will rely on the fact that “a lot of what we do in China is in segments that are not proliferated by local Chinese brands,” referring to the midscale and economy segment.

He added, “We believe that we have a real sweet spot in our select-service portfolio because the reputation and cachet that the Hyatt brand is associated with gives us some pricing power” in hotel average daily rate pricing.

First Quarter Earnings by the Numbers

Hoplamazian characterized the first quarter as a “very strong” one with, net income of $411 million, compared to last year’s $55 million.

Adjusted net income, however, was $40 million, which beat Wall Street estimates, but represented a drop from last year’s adjusted net income of $89 million.

System-wide revenue per available room (RevPAR) grew 4.3 percent, driven by growth in occupancy and average daily rates.

While Hoplamazian said he is “cautiously optimistic” about the remainder of the year for Hyatt’s business, R.W. Baird senior research analyst Michael Bellisario expressed optimism for the company, which he noted as a “top hotel brand pick” for its stock.

“We believe Hyatt is well positioned to outperform peers for the remainder of the year given its greater group and international exposures,” Bellisario wrote in a note to investors.