The FINANCIAL — Hyatt Hotels Corporation on August 3 reported second quarter 2017 financial results.
Net income attributable to Hyatt was $87 million, or $0.68 per diluted share, in the second quarter of 2017, compared to $67 million, or $0.49 per diluted share, in the second quarter of 2016. Adjusted net income attributable to Hyatt was $66 million, or $0.52 per diluted share, in the second quarter of 2017, compared to $87 million, or $0.64 per diluted share, in the second quarter of 2016, according to Hyatt.
Mark S. Hoplamazian, president and chief executive officer of Hyatt Hotels Corporation, said, “Our second quarter results reflect the strength of the Hyatt brands, demonstrating continued, upward momentum in our business. In the first six months of the year, net income increased 56% and Adjusted EBITDA grew 9%, driven by comparable RevPAR growth of nearly 4% and the ongoing expansion of our portfolio. We continue to expand at a rapid pace, with hotel rooms up 7% versus prior year and a pipeline of signed deals representing 37% of our current rooms inventory.”
Second quarter of 2017 financial highlights as compared to the second quarter of 2016 are as follows:
• Net income increased 30.5% to $87 million.
• Adjusted EBITDA increased 0.6% to $229 million, up 1.3% in constant currency.
• Comparable systemwide RevPAR increased 2.9%, including a decrease of 1.2% at comparable owned and leased hotels.
• Comparable U.S. hotel RevPAR increased 1.4%; full service and select service hotel RevPAR increased 1.3% and 1.5%, respectively.
• Comparable owned and leased hotels operating margins decreased 120 basis points to 26.2%.
• Adjusted EBITDA margin decreased 140 basis points to 31.7%, in constant currency. The redemption of the Company’s preferred investment in Playa Hotels & Resorts in the first quarter negatively impacted margin by 100 basis points.
• Net hotel and net rooms growth was 10% and 7%, respectively.
Mr. Hoplamazian continued, “With the second quarter sales of Hyatt Regency Grand Cypress and Hyatt Regency Louisville subject to long-term management and franchise agreements, respectively, we have made good progress toward our goal of being a net seller of assets in 2017 while sustaining solid earnings growth and returning meaningful capital to our shareholders. Given the strength of our first half operating results, we have increased our full-year outlook for RevPAR and Adjusted EBITDA. We remain focused on super-serving the needs of high-end travelers and are confident that we are taking the right steps to create long-term value for our customers and shareholders.”
Second quarter of 2017 financial results as compared to the second quarter of 2016 are as follows:
Owned and Leased Hotels Segment
Total owned and leased hotels segment Adjusted EBITDA decreased 8.5% (7.9% in constant currency) including a 34.8% decrease in pro rata share of unconsolidated hospitality ventures Adjusted EBITDA. The decrease in total segment Adjusted EBITDA was driven by disposition activity as well as weak group demand at full service hotels in the U.S., due primarily to the shift in Easter holiday timing. Refer to the table on page 17 of the schedules for a detailed list of portfolio changes and the year-over-year net impact to total owned and leased hotels segment Adjusted EBITDA.
Owned and leased hotels segment revenues increased 0.5% (1.0% in constant currency). RevPAR for comparable owned and leased hotels decreased 1.2%. Occupancy decreased 110 basis points and ADR increased 0.2%.
The following hotels were removed from the owned and leased hotels portfolio as they were sold in the second quarter:
Hyatt Regency Grand Cypress (815 rooms) and Hyatt Regency Louisville (393 rooms). The hotels continue to be Hyatt-branded, with Hyatt Regency Grand Cypress operating under a long-term management agreement and Hyatt Regency Louisville operating under a long-term franchise agreement.
Management and Franchise Fees
Total fee revenue increased 12.0% (12.5% in constant currency) to $130 million, primarily driven by new hotels. Base management fees increased 5.4% to $52 million and incentive management fees increased 11.5% to $34 million. Franchise fees increased 8.3% to $29 million. Other fee revenues increased $6 million (or 60.2%) to $15 million, primarily due to a $5 million management agreement termination fee related to a hotel conversion to franchised.
Americas Management and Franchising Segment
Americas management and franchising segment Adjusted EBITDA increased 9.4% (9.5% in constant currency). RevPAR for comparable Americas full service hotels increased 1.6%; occupancy increased 20 basis points and ADR increased 1.4%. Adjusting for the shift in Easter holiday timing, RevPAR for comparable Americas full service hotels would have increased 3.2%. RevPAR for comparable Americas select service hotels increased 1.8%; occupancy increased 70 basis points and ADR increased 1.0%. Revenue from management, franchise and other fees increased 9.2% (consistent with change in constant currency).
Transient rooms revenue at comparable U.S. full service hotels increased 2.7%; room nights increased 1.1% and ADR increased 1.6%. Group rooms revenue at comparable U.S. full service hotels decreased 1.8%; room nights decreased 2.1% and ADR increased 0.3%. Group demand was negatively impacted by the shift of the Easter holiday into April.
The following 14 hotels were added to the portfolio in the second quarter:
Hyatt Place Austin / Round Rock (franchised, 138 rooms)
Hyatt Place Austin Airport (franchised, 139 rooms)
Hyatt Place Boise / Downtown (franchised, 150 rooms)
Hyatt Place Chapel Hill / Southern Village (franchised, 110 rooms)
Hyatt Place Cincinnati / Sharonville Convention Center (franchised, 125 rooms)
Hyatt Place Dallas / Allen (franchised, 104 rooms)
Hyatt Place Dallas / The Colony (franchised, 107 rooms)
Hyatt Place Madison / Verona (franchised, 136 rooms)
Hyatt Place Sarasota / Lakewood Ranch (franchised, 122 rooms)
Hyatt House Anchorage (franchised, 144 rooms)
Hyatt House Austin / Downtown (franchised, 190 rooms)
Hyatt House Mexico City / Santa Fe, Mexico (franchised, 119 rooms)
Hyatt House New York / Chelsea (franchised, 150 rooms)
Hyatt House Virginia Beach / Oceanfront (franchised, 156 rooms)
Southeast Asia, Greater China, Australia, South Korea, Japan and Micronesia (ASPAC) Management and Franchising Segment
ASPAC management and franchising segment Adjusted EBITDA increased 33.0% (36.7% in constant currency). RevPAR for comparable ASPAC full service hotels increased 7.2%, driven by strong RevPAR growth in China. Occupancy increased 590 basis points and ADR decreased 1.6%. Revenue from management, franchise and other fees increased 18.7% (21.1% in constant currency).
The following six hotels were added to the portfolio in the second quarter:
Park Hyatt Bangkok, Thailand (managed, 222 rooms)
Hyatt Regency Shanghai Global Harbor, China (managed, 318 rooms)
Hyatt Place Foshan Lishui, China (managed, 152 rooms)
Hyatt Place Melbourne, Essendon Fields, Australia (managed, 166 rooms)
Hyatt Place Yinchuan Dayuecheng, China (managed, 203 rooms)
Hyatt House Yinchuan Dayuecheng, China (managed, 103 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 3.6% (4.2% in constant currency). RevPAR for comparable EAME/SW Asia full service hotels increased 5.1%, driven by strength in the United Kingdom, Germany and India, partially offset by continued softness in Switzerland. Occupancy increased 330 basis points and ADR decreased 0.1%. Revenue from management, franchise and other fees increased 2.1% (2.7% in constant currency).
The following two hotels were added to the portfolio in the second quarter:
Hyatt Regency Amsterdam, Netherlands (managed, 211 rooms)
Hyatt Place Rameswaram, India (managed, 101 rooms)
Corporate and Other
Corporate and other Adjusted EBITDA increased 2.3% (2.2% in constant currency), primarily driven by the acquisition of Miraval and increased revenues related to the Company’s co-branded credit card program. This increase in Adjusted EBITDA was partially offset by higher expenses related to marketing spend to support the launch of the World of Hyatt platform.
Corporate and other revenues increased $20 million, or 172.1% (consistent with change in constant currency), primarily driven by the Miraval acquisition and higher revenue from the Company’s co-branded credit card program.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses increased 20.8%, inclusive of rabbi trust impact and stock- based compensation. Adjusted selling, general, and administrative expenses increased $10 million (or 15.7%), driven primarily by the acquisition of Miraval and marketing spend for the World of Hyatt launch. 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.
OPENINGS AND FUTURE EXPANSION
Twenty-two hotels (or 3,366 rooms) were added in the second quarter of 2017, each of which is listed above. The Company’s net rooms increased 7%, compared to the second quarter of 2016. The Company is on pace to add approximately 60 hotels in the 2017 fiscal year.
As of June 30, 2017, the Company had executed management or franchise contracts for approximately 300 hotels (or approximately 66,000 rooms), compared to the expectation for 305 hotels and 66,000 rooms (unchanged) as of March 31, 2017. 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.
There were no share repurchases during the second quarter of 2017. During the first quarter, Hyatt entered into an accelerated share repurchase (ASR) agreement to repurchase $300 million of the Company’s Class A common stock. The final settlement of the ASR is expected to occur during the third quarter of 2017, at which point open market share repurchases are expected to resume. As of July 28, 2017, the Company had approximately $509 million remaining under its share repurchase authorization.
CORPORATE FINANCE / ASSET RECYCLING
During the second quarter, the Company completed the following transactions:
In separate transactions, the Company sold Hyatt Regency Grand Cypress and Hyatt Regency Louisville for approximately $202 million and $65 million of net pretax cash proceeds, respectively.
BALANCE SHEET / OTHER ITEMS
As of June 30, 2017, the Company reported the following:
Total debt of $1.7 billion.
Pro rata share of unconsolidated hospitality venture debt of $565 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 $400 million, restricted cash of $340 million and short-term investments of $51 million.
Undrawn borrowing availability of $1.3 billion under the Company’s revolving credit facility.
The Company is reaffirming the following information for the 2017 fiscal year:
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:
Comparable systemwide RevPAR is expected to increase approximately 1% to 3%, as compared to fiscal year 2016. The Company’s previous expectation was 0% to 2%.
Net income is expected to be approximately $173 million to $201 million, compared to the previous expectation of $123 million to $159 million.
Adjusted EBITDA is expected to be approximately $795 million to $815 million, compared to the previous expectation of $769 million to $804 million. These estimates reflect a $10 million reduction related to hotel dispositions in the second quarter of 2017. These estimates also include a negative impact from foreign currency of approximately $10 million (low end of the forecast) to $5 million (high end of the forecast), compared to the previous expectation of $15 million to $10 million. Refer to the table on page 3 of the schedules for a reconciliation of the Company’s forecast for Net Income attributable to Hyatt to Adjusted EBITDA, a non-GAAP measure.
Capital expenditures are expected to be approximately $350 million, compared to the previous expectation of $375 million. The decrease is attributable to recent hotel dispositions and a reduction in corporate development projects.
Depreciation and amortization expense is expected to be approximately $362 million to $366 million, compared to the previous expectation of $376 million to $380 million.
Interest expense is expected to be approximately $80 million, compared to the previous expectation of $83 million.
Hyatt’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.