Nearly a year after the company announced it was investing in Oasis, a private accommodations provider, the company revealed Wednesday it had to take a $22 million impairment charge related to its investment.
“That impairment relates to Oasis, which is the alternative accommodations investment that we made last year,” Hyatt chief financial officer Pat Grismer said, in response to a question from an investment analyst during Hyatt’s second quarter earnings conference call. “Oasis has underperformed our expectations as it relates to the scalability of that business and the synergies to be realized through the alliance with Hyatt. The business has consistently experienced shortfalls in operating cash flow and so, as a consequence, we felt that it was prudent to impair our investment to date.”
Just last week, AccorHotels revealed it took a $288 million writeoff for its investments in Onefinestay, a luxury homesharing platform of which Hyatt used to be a major investor in, and in concierge services provider John Paul.
Both Hyatt and AccorHotels’ disclosures about their respective investments in the alternative accommodations space suggest that the hotel industry needs a better strategy for integrating that new business into their existing business models.
Whereas AccorHotels went out and directly acquired Onefinestay in 2016 for $168 million, Hyatt instead invested an undisclosed sum into Oasis and eventually synced its offerings with its World of Hyatt loyalty program. AccorHotels brought Onefinestay into its Le Club AccorHotels loyalty program earlier this year. Similarly, Marriott International announced its own homesharing pilot in April with London-based Hostmaker, with an immediate tie-in to its loyalty programs.
But aside from loyalty tie-ins, acquisitions, or partial investments, the trouble that Hyatt and AccorHotels seem to be experiencing suggests that it’s much harder to add private accommodations as a new business unit — and that although a place to sleep is a place to sleep, managing a hotel operation is very different from managing a private home rental.
Onefinestay CEO Javier Cedillo-Espin told Skift earlier this year that the differences between homes and hotels can’t be stressed enough. “[Homes are] not made for industrial use … so there’s always tremendous need for professional care, maintenance of homes, and also professional service that goes on behind the scenes, to be able to solve those issues when things go wrong.”
In other words, managing private accommodations is very labor intensive — as is managing a hotel — but arguably in a very different way.
“The one thing you need to think of, and Marriott could do it as well, is that the sharing economy is labor intensive,” Bazin said. “You need people on the ground to provide all the service. Airbnb has been doing it in the commodity space; they have been outsourcing all those services. I have the existing labor force and network, so I am providing all the synergies that exist. Anyone who does not have labor on the ground — it will cost them a lot.”
Adopting the model taken by professional vacation rental managers is one way for hotels to look at this challenge, as is, perhaps, leveraging the existing labor force that hotels already have and deploying them to nearby apartment rentals.
So, in addition to — as Oasis already does to some extent — allowing Oasis guests to have access to the amenities of local Hyatt hotel properties, Hyatt might want to consider ways to use its labor force, especially housekeeping, to service nearby Oasis apartment rentals.
Despite the stumbles AccorHotels and Hyatt have had in integrating homesharing into their respective businesses, the popularity of private accommodations and the consumer demand for it means that homesharing isn’t going away anytime soon. And the hotel industry can, like Hyatt, AccorHotels, and Marriott, to an extent, choose to embrace it and bring it into their platforms or, like Hilton, leave it alone for now. The short-term pain of investing in the homesharing space could eventually lead to profits, but it’ll take time and serious thought on the part of the hotel industry to figure out how to get there.
Clearing the Air on NH Hotel Group
Hyatt CEO Mark Hoplamazian also took the second quarter earnings conference call as an opportunity to clarify Hyatt’s position on its desire to purchase NH Hotel Group and its subsequent decision to back away from that initial inquiry.
Simply put, Minor International’s growing stake in NH Hotel Group — expected to be at 44 percent — would make Hyatt’s chances of a successful acquisition impractical.
He did, however, also deliver some insight as to what other acquisitions Hyatt might pursue in the future as it looks to grow.
“We are continuing to evaluate and pursue asset-light investment opportunities as part of our long-term growth strategy, using some of the proceeds from our $1.5 billion real estate sale down program,” he said, referring to the sale of some of Hyatt’s owned properties.
As for the kinds of assets Hyatt might buy, he said, “we are focused on acquisitions and investments that, first and foremost, help expand our presence in distribution in places where we are underrepresented and secondly … investments that are accretive to earnings but also, asset-light in nature.”
Hoplamazian also reiterated, “Europe is a key [market]. It has been, it remains a key area focus for us” and that for growth in Asia, Hyatt would likely look to high-end resort brands.
The Second Quarter by the Numbers
With the exception of that $22 million impairment charge, Hyatt had a fairly solid second quarter. Although it reported net income of $77 million, down from the $103 million it reported in the second quarter of 2017, a decrease of 24.6 percent, it saw its revenue per available room (RevPAR) go up. RevPAR system wide was up 4 percent in the quarter.
And while Hyatt’s pipeline, or number of upcoming hotel properties, was unchanged from the previous quarter, the company said it expects net room growth of 6.5 to 7 percent for the full year and a total of 60 new hotel openings.
Looking ahead, the company also updated its guidance for the rest of year, saying it expects to see net income of $508 million to $550 million for the full year, compared to a previous expectation of $495 to $553 million.
In a note to investors, Baird Equity Research senior research analyst Michael Bellisario wrote: “We have a favorable view of Hyatt’s 2Q18 results and guidance updates, and we expect shares to react positively to this report.”