Hyatt Is Sticking to Its Asset-Lighter Plan

Hyatt CEO Mark Hoplamazian said Thursday that the hotel company was on track to dispose of a total of $1.5 billion in real estate by the end of 2020. So far, the company has sold off $1.14 billion, with approximately $350 million left to be sold.

Hoplamazian, speaking during an earnings call with analysts, also reaffirmed earlier news reports of the eventual tearing down of the Grand Hyatt New York and said that Hyatt intends to sell the property to the development group seeking to redevelop the site, and work with that developer on a new Hyatt hotel property.

Relatedly, when it comes to future mergers and acquisitions, Hoplamazian reiterated that Hyatt remains committed to purchasing brands that are light on real estate assets, which is why — if the company were to pursue more acquisitions — they would align with what Hyatt did in its pursuit of Two Roads, using money it received from selling off assets to buy more asset-light brands with similar customer bases.

“The idea behind being able to redeploy capital has to do with ensuring we are able to continue expanding in areas for our key customer base,” Hoplamazian noted.

Hyatt shares were initially trading slightly lower on Thursday after reporting relatively stable earnings for the fourth quarter and full year of 2018, but eventually bounced back above the opening stock price of $72.84 a share.

Results were somewhat mixed, with the Chicago-based hotel management company’s earnings beating estimates, however revenue per available room (RevPAR) metrics were somewhat lower than expected.

Adjusted earnings of 62 cents per share for the fourth quarter beat Zacks estimates of 22 cents.

For the fourth quarter, comparable system-wide RevPAR increased 1.5 percent, including an increase of 3 percent at comparable owned and leased hotels. In the U.S., hotel RevPAR was up only 0.9 percent, with full-service RevPAR up 2.6 percent and select-service RevPAR down 3 percent.

R.W. Baird senior research analyst Michael Bellisario wrote in a note to investors that while fourth quarter earnings “topped expectations, primarily driven by better owned/leased performance (more than $5 million versus our model) and better fee revenue (more than $6 million), overall RevPAR growth is disappointing, particularly within the select-service segment.”

For the full year, comparable system-wide RevPAR increased 3.1 percent, including an increase of 3.6 percent at comparable owned and leased hotels — reflecting the lower end of Hyatt’s own estimates for the year. In the U.S., overall RevPAR was up 2 percent, with full-service hotels up 2.8 percent and select-service hotels up 0.2 percent.

The poor performance of select-service properties in the U.S., Hyatt Chief Financial Officer Joan Bottarini said, was attributable to some headwinds from hurricane-related impacts.

Hyatt’s 2019 outlook for systemwide RevPAR was given as a range between 1 to 3 percent growth, a conservative estimate.

A ‘Remarkable’ Year?

During an earnings call with analysts and investors, Hyatt CEO Mark Hoplamazian described the past year as “remarkable,” despite the lower than expected RevPAR, primarily because of the company’s enhanced development efforts — now boosted by the addition of Two Roads Hospitality’s development team — and healthy net rooms growth for the year.

Hyatt saw a total 13.6 percent boost in net rooms growth, including the $405 million acquisition of Two Roads Hospitality, which closed in November 2018 and added approximately 12,000 rooms, or 65 hotels, to the total Hyatt portfolio. Excluding Two Roads, Hyatt had a 7.2 percent increase in net room growth, compared to 7 percent in 2017.

Looking ahead at Hyatt’s pipeline of soon-to-open properties, Hoplamazian noted faster growth for Hyatt’s select-service brands such as Hyatt Place and Hyatt House, with select-service brands accounting for approximately 36 percent of the company’s pipeline.

No Mention of Wellness Push

Missing from Hoplamazian’s prepared remarks and answers to analysts, however, was mention of Hyatt’s recent investments into the wellness space, as well as Hyatt’s previous investments in homesharing. In 2017, Hyatt bought two wellness brands, Miraval and Exhale, and last year, it invested, somewhat unsuccessfully, in the homesharing brand, Oasis, which was eventually sold to Vacasa.

Hopefully, the company will address those investments in adjacent spaces during its upcoming investor day to be held on March 5.

Despite the mixed results from the fourth quarter, Baird’s Bellisario noted that “Hyatt remains our top brand pick,” adding, “we continue to believe that Hyatt has more positive company-specific catalysts relative to peers as it continues its transition to an ‘asset-lighter’ model.”