The FINANCIAL -- Hyatt Hotels Corporation on May 4 reported first quarter 2017 financial results. Net income attributable to Hyatt was $70 million, or $0.54 per diluted share, in the first quarter of 2017, compared to $34 million, or $0.25 per diluted share, in the first quarter of 2016.
Adjusted net income attributable to Hyatt was $95 million, or $0.73 per diluted share, in the first quarter of 2017, compared to $34 million, or $0.25 per diluted share, in the first quarter of 2016. Refer to the table on page 4 of the schedules for a summary of special items impacting Adjusted net income and Adjusted earnings per share in the three months ended March 31, 2017.
Mark S. Hoplamazian, president and chief executive officer of Hyatt Hotels Corporation, said, "I am pleased with our first quarter results which reflect the strength of the Hyatt brands and demonstrate upward momentum in our business. In the quarter, Adjusted EBITDA grew approximately 18%, driven by systemwide comparable RevPAR growth of nearly 5% and the continued expansion of our portfolio, including earnings from recently opened and acquired properties."
First quarter of 2017 financial highlights as compared to the first quarter of 2016 are as follows:
• Net income increased 104.8% to $70 million.
• Adjusted EBITDA increased 17.8% to $228 million, up 18.8% in constant currency.
• Comparable systemwide RevPAR increased 4.7%, including an increase of 2.7% at comparable owned and leased hotels.
• Comparable U.S. hotel RevPAR increased 4.8%; full service and select service hotel RevPAR increased 5.3% and 3.6%, respectively.
• Comparable owned and leased hotels operating margins increased 50 basis points to 25.8%.
• Adjusted EBITDA margin increased 120 basis points to 31.8%, in constant currency.
• Net hotel and net rooms growth was 9% and 7%, respectively.
Mr. Hoplamazian continued, "Our disciplined program of asset recycling supported our long-term growth strategy and yielded meaningful shareholder capital returns in the quarter. With the investment and redemption of our preferred equity stake in Playa Hotels & Resorts, we facilitated the growth of our all inclusive resort business and funded a $300 million accelerated share repurchase program. Looking ahead, we continue to target an even balance of acquisitions and dispositions over the long term to stimulate the growth of the Hyatt brand and create shareholder value. Given our liquidity profile, strong operating results and expected asset disposition activity, I am pleased to announce that our Board of Directors has approved a new $500 million share repurchase authorization."
First quarter of 2017 financial results as compared to the first quarter of 2016 are as follows:
Owned and Leased Hotels Segment
Total owned and leased hotels segment Adjusted EBITDA increased 8.8% (10.0% in constant currency) net of an 8.6% decrease in pro rata share of unconsolidated hospitality ventures Adjusted EBITDA. The increase in segment Adjusted EBITDA was primarily driven by acquisitions and new openings. Refer to the table on page 16 of the schedules for a detailed list of portfolio changes and the year-over-year net impact to owned and leased hotels segment Adjusted EBITDA in the first quarter.
Owned and leased hotels segment revenues increased 10.8% (11.7% in constant currency).
RevPAR for comparable owned and leased hotels increased 2.7%. Occupancy increased 80 basis points and ADR increased 1.6%.
Management and Franchise Fees
Total fee revenue increased 14.2% (14.4% in constant currency) to $122 million, primarily driven by new hotels and improved performance at existing hotels in the Americas region. Base management fees increased 4.7% to $47 million and incentive management fees increased 17.0% to $35 million. Franchise fees increased 16.2% to $27 million. Other fee revenues increased 47.2% to $13 million, including a $4 million termination fee for a hotel that left the chain.
Americas Management and Franchising Segment
Americas management and franchising segment Adjusted EBITDA increased 18.1% (18.3% in constant currency). RevPAR for comparable Americas full service hotels increased 5.1%; occupancy increased 100 basis points and ADR increased 3.7%. Roughly a third of the RevPAR growth at comparable Americas full service hotels was attributable to the shift of the Easter holiday to the second quarter this year compared to the first quarter last year, and the U.S. Presidential Inauguration. RevPAR for comparable Americas select service hotels increased 3.9%; occupancy increased 80 basis points and ADR increased 2.7%. Revenue from management, franchise and other fees increased 14.1% (14.2% in constant currency).
Group rooms revenue at comparable U.S. full service hotels increased 10.3%; room nights increased 5.7% and ADR increased 4.3%. Group demand benefited from the aforementioned timing of the Easter holiday and U.S. Presidential Inauguration. Transient rooms revenue at comparable U.S. full service hotels decreased 1.1%, in part displaced by strength in some of the Company's higher-rated group business; room nights decreased 4.3% and ADR increased 3.4%, according to Hyatt Hotels.
The following five hotels were added to the portfolio in the first quarter:
• Hyatt Regency Andares Guadalajara, Mexico (managed, 257 rooms)
• Hyatt Place Edmonton-West, Canada (franchised, 161 rooms)
• Hyatt Place Blacksburg (franchised, 123 rooms)
• Hyatt Place State College (franchised, 165 rooms)
• Hyatt Place West Des Moines / Jordan Creek (franchised, 123 rooms)
One hotel was removed from the portfolio in the first quarter.
Southeast Asia, Greater China, Australia, South Korea, Japan and Micronesia (ASPAC) Management and Franchising Segment
ASPAC management and franchising segment Adjusted EBITDA increased 27.6% (28.6% in constant currency). RevPAR for comparable ASPAC full service hotels increased 5.2%, driven by increased occupancy in China, Hong Kong, South Korea and Southeast Asia. Occupancy increased 520 basis points and ADR decreased 2.8%. Revenue from management, franchise and other fees increased 16.1% (17.2% in constant currency).
The following hotel was added to the portfolio in the first quarter:
• Hyatt Regency Xiamen Wuyuanwan, China (managed, 301 rooms)
Europe, Africa, Middle East and Southwest Asia (EAME/SW Asia) Management and Franchising Segment
EAME/SW Asia management and franchising segment Adjusted EBITDA increased 3.7% (5.2% in constant currency). RevPAR for comparable EAME/SW Asia full service hotels increased 3.1%, driven by strength in the United Kingdom, Germany and India offset partially by weakness in France, Switzerland and Turkey. Occupancy increased 360 basis points and ADR decreased 2.5%. Revenue from management, franchise and other fees increased 2.2% (3.3% in constant currency).
The following two hotels were added to the portfolio in the first quarter:
• Hyatt Centric Levent Istanbul, Turkey (franchised, 79 rooms)
• Hyatt Regency Riyadh Olaya, Kingdom of Saudi Arabia (managed, 261 rooms)
Corporate and Other
Corporate and other Adjusted EBITDA increased 14.2% (also 14.2% in constant currency), primarily driven by the acquisition of Miraval. Corporate and other revenues increased 174.6% (also 174.6% in constant currency).
The following three destination wellness resort properties were added to the portfolio in the first quarter:
• Miraval Arizona Resort & Spa, Tucson, Ariz. (owned, 118 rooms)
• Travaasa Resort, Austin, Texas, part of the Miraval portfolio (owned, 120 rooms)
• Cranwell Spa & Golf Resort, Lenox, Mass., part of the Miraval portfolio (owned, 148 rooms)
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses increased 11.7%, inclusive of rabbi trust impact and stock- based compensation. Adjusted selling, general, and administrative expenses decreased 2.3%. Refer to the table on page 9 of the schedules for a reconciliation of selling, general, and administrative expenses to Adjusted selling, general, and administrative expenses.
OPENINGS AND FUTURE EXPANSION
Eleven (11) hotels (or 1,856 rooms) were added in the first quarter of 2017, each of which is listed above. The Company's net rooms increased 7%, compared to the first quarter of 2016. Hyatt is on pace to add approximately 60 hotels in the 2017 fiscal year.
As of March 31, 2017, the Company had executed management or franchise contracts for approximately 305 hotels (or approximately 66,000 rooms), the same as at year-end 2016. The executed contracts represent important potential entry into several new countries and expansion into new markets or markets in which the Company is under-represented.
During the first quarter of 2017, the Company repurchased 5,480,636 shares of Class A common stock at a weighted average price of $52.48 per share, for an aggregate purchase price of approximately $288 million. This includes $240 million of Class A shares which were part of the $300 million accelerated share repurchase agreement entered into on March 16, 2017. This agreement is covered by Hyatt’s previously announced share repurchase programs.
On May 3, 2017 the Company's board of directors authorized the repurchase of up to an additional $500 million of the Company's Class A and Class B common stock. These repurchases may be made from time to time in the open market, in privately negotiated transactions, or otherwise, including pursuant to a Rule 10b5-1 plan, at prices that the Company deems appropriate and subject to market conditions, applicable law and other factors deemed relevant in the Company’s sole discretion. The Company is not obligated to repurchase any dollar amount or any number of shares of common stock, and repurchases may be suspended or discontinued at any time. As of May 4, the Company had approximately $509 million remaining under its share repurchase authorization.
CORPORATE FINANCE / ASSET RECYCLING
During the first quarter, the Company completed the following transactions:
• On January 17, 2017, the Company acquired Miraval Group, which included the Miraval brand, a Miraval destination resort in Tucson, Ariz. and a resort in Austin, Texas, which will be renovated and rebranded as Miraval. On January 26, 2017, the Company acquired approximately 95% of a third resort, the Cranwell Spa & Golf Resort in Lenox, Mass., which will be renovated and rebranded as Miraval. Total cash consideration for all Miraval related assets was approximately $239 million.
• In connection with the March 11, 2017 business combination of Playa Hotels & Resorts B.V. and Pace Holdings Corporation, the Company announced the full redemption of its $290 million preferred share investment in Playa. Following the redemption, Hyatt retains a common equity stake of 11.57% in Playa Hotels & Resorts N.V. (NASDAQ: PLYA).
• An unconsolidated hospitality venture in which the Company holds an ownership interest sold a Hyatt Place hotel, for which Hyatt received proceeds of approximately $4 million. The hotel continues to be Hyatt-branded.
BALANCE SHEET / OTHER ITEMS
As of March 31, 2017, the Company reported the following:
• Total debt of $1.7 billion.
• Pro rata share of unconsolidated hospitality venture debt of $557 million, substantially all of which is non-recourse to Hyatt and a portion of which Hyatt guarantees pursuant to separate agreements.
• Cash and cash equivalents, including investments in highly-rated money market funds and similar investments, of $374 million, short-term investments of $52 million and restricted cash of $64 million.
• Undrawn borrowing availability of $1.2 billion under its revolving credit facility.
The Company is reaffirming the following information for the 2017 fiscal year:
• Adjusted EBITDA is expected to be approximately $769 million to $804 million. These estimates include a negative impact from foreign currency translation of approximately $15 million (at the low end of the forecast) to $10 million (at the high end of the forecast). Refer to the table on page 3 of the schedules for a full reconciliation of the Company's forecast for Net Income attributable to Hyatt Hotels Corporation to Adjusted EBITDA, a non-GAAP measure.
• Comparable systemwide RevPAR is expected to increase approximately 0% to 2%, as compared to fiscal year 2016.
• Adjusted selling, general, and administrative expenses are expected to be approximately $310 million. This excludes approximately $31 million of stock-based compensation expense, and any potential expenses related to benefit programs funded through rabbi trusts.
• Other income (loss), net is expected to be negatively impacted by approximately $80 million related to performance guarantee expense for the four managed hotels in France.
• The effective tax rate is expected to be approximately 36% to 38%.
• The Company expects to open approximately 60 hotels.
The Company is revising the following information for the 2017 fiscal year:
• Net income is expected to be approximately $123 million to $159 million, compared to previous expectation of $130 million to $166 million.
• Capital expenditures are expected to be approximately $375 million, compared to previous expectation of $430 million. The decrease from the prior estimate is primarily attributable to the Company entering into unconsolidated joint venture agreements with respect to several corporate development projects, along with a change in the timing of corporate development projects.
• Depreciation and amortization expense is expected to be approximately $376 million to $380 million, including the acquisition of Miraval. This compares to the Company's previous expectation of $370 million to $374 million.
• Interest expense is expected to be approximately $83 million, reflecting amounts drawn on Hyatt's revolving credit facility. This compares to the Company's previous expectation of $77 million.
The Company's outlook is based on a number of assumptions that are subject to change and many of which are outside the control of the Company. If actual results vary from these assumptions, the Company's expectations may change. There can be no assurance that the Company will achieve these results.