The FINANCIAL — Hyatt Hotels Corporation on February 16 reported fourth quarter 2016 financial results.
Net income attributable to Hyatt was $41 million, or $0.31 per diluted share, in the fourth quarter of 2016, compared to $37 million, or $0.26 per diluted share, in the fourth quarter of 2015. Adjusted net income attributable to Hyatt was $39 million, or $0.29 per diluted share, in the fourth quarter of 2016, compared to $30 million, or $0.21 per diluted share, in the fourth quarter of 2015, according to Hyatt.
Mark S. Hoplamazian, president and chief executive officer of Hyatt Hotels Corporation, said, “Our business continues to have good momentum and we believe we’re well-positioned for continued growth in 2017. In 2016, Adjusted EBITDA grew approximately 5%, fueled by systemwide comparable RevPAR growth of 2.5%. Excluding the impact of foreign exchange, Adjusted EBITDA grew approximately 6%. For 2017, we expect systemwide comparable RevPAR growth of approximately 0% to 2% and Adjusted EBITDA growth of approximately 3% to 7%, in constant currency and before the impact of transactions.”
Fourth quarter 2016 financial results as compared to the fourth quarter of 2015 are as follows:
• Net income increased 10.8% to $41 million.
• Adjusted EBITDA decreased 3.9% to $172 million, down 2.3% in constant currency.
• Comparable systemwide RevPAR increased 2.0%, including a decrease of 0.3% at comparable owned and leased hotels.
• Comparable U.S. hotel RevPAR increased 2.4%; full service and select service hotel RevPAR increased 2.0% and 3.5%, respectively.
• Comparable owned and leased hotels operating margin decreased 230 basis points to 22.3%.
Fiscal year 2016 financial results as compared to fiscal year 2015 are as follows:
• Net income increased 64.5% to $204 million.
• Adjusted EBITDA increased 4.7% to $785 million, up 6.2% in constant currency.
• Comparable systemwide RevPAR increased 2.5%, including an increase of 2.2% at comparable owned and leased hotels.
• Comparable U.S. hotel RevPAR increased 3.3%; full service and select service hotel RevPAR increased 2.6% and 5.4%, respectively.
• Comparable owned and leased hotels operating margin decreased 30 basis points to 24.7%.
• The Company opened 59 hotels during 2016 compared to 49 hotels in 2015.
• Net hotel and net rooms growth was 10% and 7% in 2016, respectively, compared to growth of 8% and 6%, respectively, in 2015.
• As of December 31, 2016, the Company’s executed contract base consisted of approximately 305 hotels or approximately 66,000 rooms. This compared to approximately 260 hotels or approximately 56,000 rooms as of December 31, 2015.
• The Company repurchased 5,631,557 shares of common stock for $272 million in 2016 compared to 13,199,811 shares for $715 million in 2015.
Mr. Hoplamazian continued, “New hotel openings continue to be an important growth driver for Hyatt. We added a record-level 59 new hotels to our system in 2016 and finished the year with approximately 66,000 rooms in our executed contract base, an increase of approximately 5,000 rooms compared to the end of the third quarter. This increased contract base equates to nearly 40% growth of our system – predominantly in international markets – which we expect will largely materialize over the next four to five years. We are also driving growth beyond traditional hotel stays, as demonstrated by our acquisition of Miraval Group last month, marking Hyatt’s commitment to expand in the rapidly growing wellness category. This is consistent with our stated plan to extend the Hyatt brand beyond traditional hotel stays, which further serves our high-end customers. We look forward to integrating Miraval into our existing portfolio of brands and making further growth investments across our business in the year ahead.”
Fourth quarter 2016 financial results as compared to the fourth quarter of 2015 are as follows:
Owned and Leased Hotels Segment
Total owned and leased hotels segment Adjusted EBITDA decreased 2.5% (flat in constant currency) including a 23.5% increase in pro rata share of unconsolidated hospitality ventures Adjusted EBITDA. Refer to the table on page 19 of the schedules for a detailed list of portfolio changes and the year-over-year net impact to fourth quarter owned and leased hotels segment Adjusted EBITDA. Owned and leased hotels segment revenue decreased 0.9% (increased 0.4% in constant currency).
RevPAR for comparable owned and leased hotels decreased 0.3%. Occupancy increased 40 basis points and ADR decreased 0.8%.
The following hotel was added to the segment in the fourth quarter:
• Andaz Maui at Wailea Resort (owned, 300 rooms, including 10 villas), as the Company acquired its partners’ 34.3% interests from an unconsolidated hospitality venture in which the Company previously held a 65.7% interest.
Management and Franchise Fees
Total fee revenues increased 8.4% (9.4% in constant currency) to $116 million. Base management fees were flat at $47 million and incentive management fees increased 6.7% to $32 million. Franchise fees increased 28.6% to $27 million, attributable to both strong performance at existing properties, as well as new hotels and conversions. Other fee revenues increased 11.1% to $10 million.
Americas Management and Franchising Segment
Americas management and franchising segment Adjusted EBITDA increased 7.0% (consistent with change in constant currency). RevPAR for comparable Americas full service hotels increased 1.9%; occupancy decreased 20 basis points and ADR increased 2.3%. RevPAR for comparable Americas select service hotels increased 3.2%; occupancy decreased 10 basis points and ADR increased 3.3%. Revenue from management, franchise and other fees increased 5.9% (consistent with change in constant currency).
Transient rooms revenue at comparable U.S. full service hotels increased 4.1%; room nights increased 2.0% and ADR increased 2.1%. Group rooms revenue at comparable U.S. full service hotels decreased 1.5%; room nights decreased 3.6% and ADR increased 2.2%. Group revenue in the fourth quarter was negatively impacted by the timing of Jewish holidays, which shifted into October in 2016 from September in 2015.
The following 13 hotels were added to the portfolio during the fourth quarter:
• Hyatt Regency Cartagena, Colombia (managed, 261 rooms)
• Andaz Mayakoba Resort Riviera Maya, Mexico (managed, 214 rooms)
• Andaz Scottsdale Resort & Spa (managed, 201 rooms)
• Hyatt Centric Waikiki Beach (franchised, 230 rooms)
• Hyatt Place Augusta (franchised, 115 rooms)
• Hyatt Place Biloxi (franchised, 114 rooms)
• Hyatt Place Boca Raton / Downtown (franchised, 200 rooms)
• Hyatt Place Celaya, Mexico (managed, 145 rooms)
• Hyatt Place Edmonton / Downtown, Canada (franchised, 255 rooms)
• Hyatt Place Emeryville / San Francisco Bay Area (franchised, 175 rooms)
• Hyatt Place Houston NW / Vintage Park (franchised, 130 rooms)
• Hyatt Place Orlando / Lake Buena Vista (franchised, 169 rooms)
• Hyatt Place São José do Rio Preto, Brazil (managed, 152 rooms)
Southeast Asia, Greater China, Australia, South Korea, Japan and Micronesia (ASPAC) Management and Franchising Segment
ASPAC management and franchising segment Adjusted EBITDA increased 5.6% (consistent with change in constant currency). RevPAR for comparable ASPAC full service hotels increased 3.6%, driven by strength in China, Hong Kong and Southeast Asia. Occupancy increased 410 basis points and ADR decreased 2.2%. Revenue from management, franchise and other fees increased 11.5% (consistent with change in constant currency).
The following two hotels were added to the portfolio during the fourth quarter:
• Hyatt Regency Fuzhou Cangshan, China (managed, 226 rooms)
• Hyatt Regency Sydney, Australia (managed, 892 rooms)
Europe, Africa, Middle East and Southwest Asia (EAME/SW Asia) Management and Franchising Segment
EAME/SW Asia management and franchising segment Adjusted EBITDA decreased 10.0% (consistent with change in constant currency). RevPAR for comparable EAME/SW Asia full service hotels decreased 3.4%, driven by softness in France and Turkey, and offset by strength in India and Eastern Europe. Occupancy increased 40 basis points and ADR decreased 4.1%. Revenue from management, franchise and other fees was flat (increased 5.3% excluding the effect of currency).
The following three hotels were added to the portfolio during the fourth quarter:
• Hyatt Regency Tashkent, Uzbekistan (managed, 300 rooms)
• Andaz Delhi, India (managed, 401 rooms)
• Hyatt Place London Heathrow Airport, England (franchised, 358 rooms)
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses decreased 10.3%. Adjusted selling, general, and administrative expenses decreased 3.9%, primarily due to a decrease in professional fees. Refer to the table on page 10 of the schedules for a reconciliation of selling, general, and administrative expenses to Adjusted selling, general, and administrative expenses.
In the quarter, the Company recorded adjustments related to its co-branded credit card program which negatively impacted Adjusted EBITDA by $7 million, and comparable owned and leased hotels operating margin by 170 basis points. The full-year 2016 negative impact to comparable owned and leased hotels operating margin was 40 basis points as a result of these adjustments.
OPENINGS AND FUTURE EXPANSION
Eighteen hotels (or 4,538 rooms) were added in the fourth quarter of 2016, each of which is listed above. The Company’s net rooms increased 7%, compared to the fourth quarter of 2015. During the 2016 fiscal year, the Company opened 59 hotels, representing 12,879 rooms. Two hotels, representing 978 rooms, were removed from the portfolio during the 2016 fiscal year.
As of December 31, 2016 the Company had executed management or franchise contracts for approximately 305 hotels (approximately 66,000 rooms). This reflects an increase from approximately 285 hotels (approximately 61,000 rooms) as of September 30, 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. Refer to the table on page 18 of the schedules for a breakdown of the executed contract base.
During the fourth quarter of 2016, the Company repurchased 75,133 shares of Class A common stock at a weighted average price of $56.64 per share, for an aggregate purchase price of $4 million. During the 2016 fiscal year, the Company repurchased 5,631,557 shares of common stock (3,749,921 Class A shares and 1,881,636 Class B shares) at a weighted average price of $48.37 per share, for an aggregate purchase price of $272 million.
On December 13, 2016 the Company’s board of directors authorized the repurchase of up to an additional $250 million of the Company’s 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.
From January 1 through February 10, 2017, the Company repurchased 354,968 shares of Class A common stock at a weighted average price of $55.12 per share, for an aggregate purchase price of $20 million. As of February 10, 2017, the Company had $337 million remaining under its share repurchase authorization.
CORPORATE FINANCE / ASSET RECYCLING
During the fourth quarter, the Company completed the following transactions:
• Acquired its partners’ interests in Andaz Maui at Wailea Resort and villas for a net purchase price of approximately $136 million. Hyatt accounted for the transaction as a step acquisition and recorded a gain through equity earnings of $14 million. Additionally, prior to the acquisition, the unconsolidated hospitality venture repaid $121 million of third-party debt.
• An unconsolidated hospitality venture in which the Company holds an ownership interest sold three Hyatt Place hotels to third parties, for which Hyatt received combined proceeds of approximately $8 million. The hotels continue to be Hyatt-branded.
Subsequent to the end of the fourth quarter, the Company completed the following transaction:
• On January 17, 2017, acquired Miraval Group for $215 million, which includes the Miraval brand, a Miraval resort in Tucson, Ariz. and a resort in Austin, Texas, which will be rebranded as Miraval. On January 26, 2017, acquired a third resort, the Cranwell Spa & Golf Resort in Lenox, Mass. for approximately $20 million, which will be rebranded as Miraval.
BALANCE SHEET / OTHER ITEMS
As of December 31, 2016, the Company reported the following:
• Total debt of $1.6 billion.
• Pro rata share of unconsolidated hospitality venture debt of $745 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 $482 million, short-term investments of $56 million and restricted cash of $76 million.
• Undrawn borrowing availability of $1.4 billion under its revolving credit facility.
The Company is providing the following information for the 2017 fiscal year:
• Net income is expected to be approximately $94 million to $129 million.
• Adjusted EBITDA is expected to be approximately $795 million to $830 million. These estimates include a negative impact from foreign currency translation of approximately $15 million (reflected in the low end of the forecast) to $10 million (reflected in 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. No additional disposition or acquisition activity has been included in the forecast, including financial statement impacts related to the Company’s investment in Playa Hotels & Resorts B.V. (“Playa”) which may occur in connection with Playa’s potential business combination with Pace Holdings Corporation or potential future initial public offering. Please refer to Hyatt’s annual report on Form 10-K for further details regarding Hyatt’s investment in Playa.
• 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 includes approximately $20 million of new spending related to key growth initiatives, and excludes approximately $31 million of stock-based compensation expense, and any potential expenses related to benefit programs funded through rabbi trusts.
• Capital expenditures are expected to be approximately $430 million. The increase from capital expenditures in 2016 is attributable to the following: approximately $55 million related to the redevelopment and repositioning of Miraval Group assets; approximately $65 million related to new corporate development projects which will be recycled over time; approximately $50 million related to Hyatt’s new corporate headquarters; and approximately $50 million related to increased levels of reinvestment in the Company’s existing owned and leased portfolio due to the timing of property renovations.
• In addition to the capital expenditures described above, the Company intends to continue a strong level of investment spending. Investment spending includes acquisitions, equity investments in unconsolidated hospitality ventures, debt investments, contract acquisition costs and other investments. The Company expects that the funds required for these investments over time would be generated through dispositions of existing owned and leased hotels as well as the sale of ownership interests in unconsolidated hospitality ventures.
• Depreciation and amortization expense is expected to be approximately $370 million to $374 million.
• Interest expense is expected to be approximately $77 million.
• 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. Hyatt expects 2017 to be the peak year for this expense due to the timing of extensive hotel renovations and persistent market softness.
• The effective tax rate is expected to be approximately 36% to 38%. The increase in tax rate versus 2016 is attributable to non-recurring discrete tax benefits in 2016 as well as unbenefited tax losses in 2017.
• The Company expects to open approximately 60 hotels.
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.